FOMC Minutes of the Federal Open Market Committee December 17–18, 2024 FEDERAL RESERVE SYSTEM Minutes of the Federal Open Market Committee December 17–18, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, December 17, 2024, at 10:30 a.m. and continued on Wednesday, December 18, 2024, at 9:00 a.m.1 Developments in Financial Markets and Open Market Operations The manager turned first ...

Economic Projections - The Federal Open Market Committee (FOMC) participants submitted projections for real GDP growth, unemployment rate, and inflation from 2024 to 2027, with longer-run projections based on appropriate monetary policy assumptions [2] - The median projection for real GDP growth in 2024 is 2.5%, with a range of 2.4–2.5%, and the unemployment rate is projected at 4.2%, with a range of 4.2–4.5% [5] - PCE inflation is projected at 2.4% for 2024, with a range of 2.4–2.5%, while core PCE inflation is projected at 2.8%, with a range of 2.8–2.9% [5] Federal Funds Rate Projections - The median projection for the federal funds rate in 2024 is 4.4%, with a range of 4.4–4.6%, and it is expected to decline to 3.0% in the longer run [5] - The September projections for the federal funds rate in 2024 were 4.4%, with a range of 4.4–4.6%, and the longer-run projection was 2.9% [5] Uncertainty and Risks - FOMC participants assessed uncertainty and risks around their economic projections, with some participants judging the uncertainty as "broadly similar" to historical levels [36] - The risks to GDP growth were assessed as "broadly balanced" by some participants, while others viewed them as weighted to the downside or upside [35] - The uncertainty around the federal funds rate projections is significant, with historical confidence intervals being quite wide [80] Historical Projection Errors - The average historical projection error for real GDP growth in 2024 is ±0.8 percentage points, while for the unemployment rate, it is ±0.1 percentage points [76] - The error range for short-term interest rates in 2024 is ±0.1 percentage points, reflecting the uncertainty in forecasting the federal funds rate [76]

Economic Overview - Economic activity has continued to expand at a solid pace, with labor market conditions easing and the unemployment rate remaining low despite a slight increase [1] - Inflation has made progress toward the 2 percent objective but remains somewhat elevated [1] Monetary Policy Goals - The Committee aims to achieve maximum employment and maintain inflation at 2 percent over the longer run [2] - Risks to achieving employment and inflation goals are roughly balanced, with the economic outlook remaining uncertain [2] Federal Funds Rate Adjustment - The Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/4 to 4-1/2 percent [3] - The Committee will continue reducing holdings of Treasury securities, agency debt, and agency mortgage-backed securities [3] Monetary Policy Implementation - The Board of Governors voted unanimously to lower the interest rate paid on reserve balances to 4.4 percent, effective December 19, 2024 [8] - The Federal Open Market Committee directed the Open Market Desk to maintain the federal funds rate in the target range of 4-1/4 to 4-1/2 percent [8] - Standing overnight repurchase agreement operations will be conducted with a minimum bid rate of 4.5 percent and an aggregate operation limit of $500 billion [8] - Standing overnight reverse repurchase agreement operations will be conducted at an offering rate of 4.25 percent with a per-counterparty limit of $160 billion per day [8] Treasury and Agency Securities Management - Principal payments from Treasury securities exceeding $25 billion per month will be rolled over at auction, with coupon securities redeemed up to the monthly cap [8] - Principal payments from agency debt and agency mortgage-backed securities exceeding $35 billion per month will be reinvested into Treasury securities [8] Primary Credit Rate Adjustment - The Board of Governors approved a 1/4 percentage point decrease in the primary credit rate to 4.5 percent, effective December 19, 2024 [10]

National Summary - Economic activity rose slightly in most Federal Reserve Districts, with modest or moderate growth in three regions offsetting flat or slightly declining activity in two others. Expectations for growth rose moderately across most geographies and sectors [10] - Consumer spending was generally stable, with increased price sensitivity among consumers noted by many businesses. Spending on home furnishings decreased due to limited household mobility, and mortgage demand was low overall [10] - Capital spending and purchases of raw materials were flat or declining in most Districts, with sales of farm equipment being a notable headwind to overall investment activity [10] - Energy activity in the oil and gas sector was flat, while demand for electricity generation continued to grow robustly, driven by rapid expansions in data centers [10] Labor Markets - Employment levels were flat or up slightly across Districts, with subdued hiring activity and low levels of layoffs reported. Many firms expected employment to remain steady or rise slightly over the next year [11] - Wage growth softened to a modest pace across most Districts, with expectations for wage growth also softening. Job growth and wage growth for entry-level positions and skilled trades were exceptions, rising robustly [11] Prices - Prices rose at a modest pace across Federal Reserve Districts, with businesses facing greater difficulty passing costs on to customers. Input prices were rising faster than selling prices for most businesses, leading to declining profit margins [13] - Rising insurance prices were reported as significant cost pressures for many businesses, with expectations for the current pace of price growth to persist [13] Highlights by Federal Reserve District - **Boston**: Economic activity was down slightly, with steady employment and modest wage increases. Consumer spending on restaurants decreased, and commercial real estate activity was flat [14] - **New York**: Regional economic activity expanded slightly, led by strong growth in manufacturing. Employment grew slightly, and wage growth remained moderate [15] - **Philadelphia**: Business activity edged up, with modest growth in manufacturing and a flat consumer spending environment. Inflation expectations rose due to potential tariffs [16] - **Cleveland**: Business activity grew modestly, with robust demand for business services and slight employment growth. Prices and wages increased modestly [17] - **Richmond**: The regional economy grew slightly, with little change in employment levels and moderate wage growth. Price levels were largely unchanged [19] - **Atlanta**: Economic activity grew, with steady employment and slow wage growth. Retail sales improved slightly, while tourism declined modestly [20] - **Chicago**: Economic activity increased slightly, with modest rises in consumer and business spending. Prices and wages rose moderately [21] - **St. Louis**: Economic activity slightly increased, with moderate price increases and slight declines in consumer spending across income distributions [22] - **Minneapolis**: Economic activity increased slightly, with moderate wage growth and flat consumer spending [23] - **Kansas City**: Economic growth was modest, with strong expectations for demand growth and plans to increase hiring and capital expenditures [24] - **Dallas**: Economic activity rose moderately, with growth in nonfinancial services and improved outlooks for demand expectations [25] - **San Francisco**: Economic activity was stable, with generally unchanged employment levels and slight increases in wages and prices [26] Federal Reserve Bank of Boston - Economic activity was down slightly, with steady employment and modest wage increases. Consumer spending was restrained by warm weather affecting seasonal goods purchases [27] - Manufacturing sales increased modestly, driven by strong AI-related demand, while commercial real estate activity was flat [27] - The outlook was neutral on average, with mixed sentiments and elevated uncertainty concerning the economy [27] Federal Reserve Bank of New York - Economic activity expanded slightly, led by strong growth in manufacturing. Employment grew slightly, and wages continued to rise moderately [39] - The housing market remained solid, with a pickup in sales in New York City, while commercial real estate markets steadied after a period of weakness [39] Federal Reserve Bank of Philadelphia - Business activity edged up, with modest growth in manufacturing and steady consumer spending. Inflation expectations rose due to potential tariffs [58] - Employment appeared to rise modestly, with a slight increase in the average workweek reported [59] Federal Reserve Bank of Cleveland - Business activity grew modestly, with robust demand for business services and slight employment growth. Prices and wages increased modestly [81] - Nonresidential construction and real estate activity increased modestly, with expectations for strong growth in demand in the coming months [91] Federal Reserve Bank of Richmond - Economic activity expanded slightly, with consumer spending on retail and tourism flat to up slightly. Employment was little changed, while wages continued to rise moderately [96] - Price levels were largely unchanged, with moderate annual price growth reported in the service sector [98]

Minutes of the Federal Open Market Committee November 6–7, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Wednesday, November 6, 2024, at 10:00 a.m. and continued on Thursday, November 7, 2024, at 9:00 a.m.1 Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Nominal Treasury yields rose notably over the p ...

Summary of the Conference Call Industry or Company Involved - The discussion primarily revolves around the Federal Reserve's monetary policy and its implications for the U.S. economy, particularly focusing on interest rates, inflation, and asset prices such as U.S. Treasury yields and gold. Core Points and Arguments 1. **Federal Reserve's November FOMC Meeting** The recent FOMC meeting was relatively uneventful for the U.S. economy, with a key focus on asset price reactions and future monetary policy outlooks [1] 2. **U.S. Treasury Yields** The two-year U.S. Treasury yield fluctuated from 4.19% to 4.26% and back to 4.19%, influenced by the Fed's hawkish statement and the removal of confidence in inflation decline from their communication [1][2] 3. **Inflation Outlook** The Fed's statement indicated a cautious approach to inflation, acknowledging that while inflation has decreased, future inflation trends may remain volatile due to sticky service-related inflation components [2] 4. **Gold Price Reaction** Gold prices rose above $2700, attributed to the Fed's acknowledgment of U.S. debt sustainability issues, which provided a boost to gold as a safe-haven asset [2][3] 5. **Fed Chair Powell's Independence** Powell asserted his independence from political pressures, indicating he would not resign if Trump were to be re-elected, and that legal processes would prevent his removal [3] 6. **Potential for Future Inflation** The end of Powell's term in May 2026 could lead to a more compliant Fed chair under Trump, raising concerns about a second wave of inflation due to potential expansionary fiscal and monetary policies [4] 7. **Short-term Monetary Policy Outlook** The expectation for the February FOMC meeting is a hawkish stance, with potential for a pause in rate cuts due to unfavorable economic data leading up to the meeting [5][6] 8. **Labor Market and Inflation Data** The upcoming labor market data is expected to show modest recovery, but inflation may see a slight rebound in Q4, complicating the Fed's decision-making process [5][6] 9. **Mid-term Rate Cut Expectations** Market expectations suggest up to 3.5 rate cuts by the end of next year, but this may be overly optimistic given the resilient economic conditions anticipated under Trump's policies [6][7] 10. **Long-term Implications for Gold** A potential shift to a dovish Fed chair in 2026 could lead to increased inflation and a decline in real interest rates, which would be favorable for gold prices [8] Other Important but Possibly Overlooked Content - The discussion highlighted the complexities of the U.S. debt situation, emphasizing that while current levels are manageable, the sustainability of this debt is a growing concern [3] - The geopolitical implications of a more isolationist U.S. stance under a future Trump administration could exacerbate inflationary pressures from the supply side [4] - The potential for a significant shift in monetary policy direction post-2026 could have lasting effects on both the U.S. economy and global markets [8]

National Summary - Economic activity was little changed in nearly all Districts since early September, with two Districts reporting modest growth [8] - Manufacturing activity declined in most Districts, while banking sector activity was steady to slightly up [8] - Consumer spending showed mixed results, with some shifts towards less expensive alternatives [8] - Housing market activity remained stable, with inventory expanding and home values holding steady or rising slightly [8] - Commercial real estate markets were generally flat, with some activity boosted by data center and infrastructure projects [8] - Agricultural activity was flat to down modestly, with some crop prices remaining unprofitably low [8] - Energy activity was unchanged or down modestly, with lower energy prices compressing producers' margins [8] Labor Markets - Employment increased slightly, with more than half of the Districts reporting slight or modest growth [9] - Demand for workers eased somewhat, focusing primarily on replacement rather than growth [9] - Worker availability improved, but finding workers with specific skills remained challenging in sectors like technology and manufacturing [9] - Wages generally rose at a modest to moderate pace, with some slowdown in wage increases noted [9] Prices - Inflation moderated, with selling prices increasing at a slight or modest pace in most Districts [10] - Prices for some food products, such as eggs and dairy, increased more sharply [10] - Input prices generally rose moderately, with rising insurance and healthcare costs noted as acute pressures [10] Highlights by Federal Reserve District - **Boston**: Economic activity was flat, with international travel as a bright spot; home sales and prices softened [11] - **New York**: Regional economic activity was little changed, with solid housing markets and strong capital spending plans [12] - **Philadelphia**: Business activity declined slightly, but expectations for future growth rose among manufacturers and non-manufacturers [13] - **Cleveland**: Business activity was stable, with increased residential construction and strong demand for nonfinancial services [14] - **Richmond**: The regional economy grew modestly, with increased consumer spending and loan demand [15] - **Atlanta**: The economy declined slightly, with steady employment and slow wage growth [16] - **Chicago**: Economic activity increased slightly, with modest rises in consumer spending and employment [17] - **St. Louis**: Economic activity remained unchanged, with modest price increases and a slightly pessimistic outlook [18] - **Minneapolis**: Economic activity declined slightly, with flat consumer spending and moderate wage increases [19] - **Kansas City**: Economic activity was steady, with mild growth in consumer spending [20] - **Dallas**: Economic activity rose modestly, driven by nonfinancial services growth [21] - **San Francisco**: Economic activity was steady, with improved labor availability and stable prices [22] Sector-Specific Insights - **Retail and Tourism**: Slight growth in revenues reported, with strong summer tourism on Cape Cod and increased airline passenger traffic [26] - **Manufacturing**: Revenues down slightly, with weak demand reported; some firms expected stable or improving demand for the rest of 2024 [27] - **Commercial Real Estate**: Activity stable on average, with office leasing falling short of expectations [29] - **Residential Real Estate**: Home sales up modestly year-over-year, with rising inventories and cautious optimism for future sales [30]

Developments in Financial Markets and Open Market Operations - Nominal Treasury yields declined notably due to weaker-than-expected data releases and policy communications suggesting a reduction in policy restraint [1] - Broad equity prices finished modestly higher, while credit spreads remained narrow by historical standards, indicating compatibility with continued economic expansion [1] - A brief episode of elevated market volatility occurred in early August, driven by unwinding of speculative trading positions due to unrelated events [2] Policy Expectations - The market-implied policy rate path shifted down materially, with expectations of about 100 basis points of cuts through year-end, compared to around 50 basis points previously [3][5] - Most survey respondents expected a 25 basis point cut at the meeting, but the probability of a 50 basis point cut had increased [5] - Balance sheet expectations remained largely unchanged, with most respondents not concerned about an economic downturn in the near or medium term [5] International Developments - Many central banks in advanced foreign economies began or continued to lower policy rates, contributing to a modest decline in the trade-weighted U.S. dollar index [6] Economic Situation - Real GDP expanded solidly, with job gains moderating and the unemployment rate remaining low at 4.2 percent [11][13] - Consumer price inflation was 2.5 percent in July, with core PCE inflation at 2.6 percent, both measures well below their rates from a year ago [12] - Labor market conditions eased further, with average monthly nonfarm payroll gains lower than in the second quarter [13] Financial Situation - The market-implied path for the federal funds rate declined notably, with nominal Treasury yields decreasing significantly [18] - Broad stock price indexes increased despite a temporary drop in early August, and yield spreads on corporate bonds remained in the bottom quintile of historical distributions [19] - Credit remained accessible for most consumers, though credit growth showed signs of moderating [24][25] Staff Economic Outlook - The staff forecasted solid economic growth, with real GDP growth expected to rise in line with potential output growth from 2025 to 2027 [28] - Inflation forecasts were slightly lower, with total and core PCE price inflation expected to decline further, reaching 2 percent by 2026 [29] Participants' Views on Current Conditions - Participants noted that inflation remained somewhat elevated but expressed greater confidence that it was moving sustainably toward 2 percent [34][35] - Labor market conditions were observed to be less tight than before the pandemic, with a slowdown in payroll employment growth [36] - Economic activity continued to expand at a solid pace, with resilient consumption spending supported by rising real household incomes [38]