Professional Documents
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Fomc Minutes 20210922
Fomc Minutes 20210922
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A joint meeting of the Federal Open Market Committee Patricia Zobel, Deputy Manager, System Open Market
and the Board of Governors of the Federal Reserve Sys- Account
tem was held by videoconference on Tuesday, Septem-
ber 21, 2021, at 1:00 p.m. and continued on Wednesday, Ann E. Misback, Secretary, Office of the Secretary,
September 22, 2021, at 9:00 a.m.1 Board
James Bullard, Esther L. George, Naureen Hassan, William F. Bassett, Antulio N. Bomfim, Burcu Duygan-
Loretta J. Mester, and Eric Rosengren, Alternate Bump, Jane E. Ihrig, Kurt F. Lewis, Chiara Scotti,
Members of the Committee and Nitish R. Sinha, Special Advisers to the Board,
Division of Board Members, Board
Patrick Harker, Robert S. Kaplan, and Neel Kashkari,
Presidents of the Federal Reserve Banks of Linda Robertson, Assistant to the Board, Division of
Philadelphia, Dallas, and Minneapolis, respectively Board Members, Board
Lorie K. Logan, Manager, System Open Market Andrew Figura and Elizabeth K. Kiser, Associate
Account Directors, Division of Research and Statistics,
Board; Paul R. Wood, Associate Director, Division
of International Finance, Board
1The Federal Open Market Committee is referenced as the of Governors of the Federal Reserve System is referenced as
“FOMC” and the “Committee” in these minutes; the Board the “Board” in these minutes.
2 Attended through the discussion of asset purchases.
Page 2 Federal Open Market Committee
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Eric C. Engstrom, Deputy Associate Director, Division Keshav Dogra, Senior Economist, Federal Reserve
of Monetary Affairs, Board; Patrick E. McCabe, Bank of New York
Deputy Associate Director, Division of Research
and Statistics, Board; Skander Van den Heuvel, Developments in Financial Markets and Open
Deputy Associate Director, Division of Financial Market Operations
Stability, Board; Jeffrey D. Walker,2 Deputy The manager turned first to a discussion of financial
Associate Director, Division of Reserve Bank market developments over the period. Domestic finan-
Operations and Payment Systems, Board cial conditions were little changed, on net, and remained
highly accommodative. The spread of the Delta variant
Brian J. Bonis and Etienne Gagnon, Assistant of the COVID-19 virus weighed on the near-term
Directors, Division of Monetary Affairs, Board growth outlook and median respondents to the Open
Market Desk’s Survey of Primary Dealers marked down
Penelope A. Beattie,3 Section Chief, Office of the projections for gross domestic product (GDP) growth
Secretary, Board; Deepa D. Datta,4 Section Chief, and revised up projections for inflation this year. None-
Division of International Finance, Board theless, expectations for the trajectory of growth beyond
2021 were little changed. Implied forward inflation
Michele Cavallo, Camelia Minoiu, and Anna Orlik, compensation two to four years ahead based on Treas-
Principal Economists, Division of Monetary ury Inflation-Protected Securities (TIPS) increased mod-
Affairs, Board estly over the intermeeting period.
Regarding the outlook for monetary policy, market par-
Randall A. Williams, Lead Information Manager,
ticipants noted policymaker communications suggesting
Division of Monetary Affairs, Board
that tapering of asset purchases could begin this year and
end by mid-2022. Around half of respondents to the
David Na, Senior Financial Institution Policy Analyst,
Desk’s surveys of primary dealers and market partici-
Division of Monetary Affairs, Board
pants viewed December as the most likely timing of the
first reduction in the net pace of purchases, although re-
Meredith Black, First Vice President, Federal Reserve
spondents also attached significant probability to the
Bank of Dallas
first reduction coming in November. Median expecta-
tions for the pace of net purchases were consistent with
Michael Dotsey and Joseph W. Gruber, Executive Vice
a gradual tapering of net purchases being completed in
Presidents, Federal Reserve Banks of Philadelphia
July of next year, about one to two months earlier than
and Kansas City, respectively
in the previous surveys. Expectations for the target fed-
eral funds rate based on survey responses and interest
Anne Baum, Carlos Garriga, Edward S. Knotek II,
rate futures moved up slightly since the previous meet-
Giovanni Olivei, and Mark L.J. Wright, Senior Vice
ing.
Presidents, Federal Reserve Banks of New York,
St. Louis, Cleveland, Boston, and Minneapolis, Several central banks announced reductions in the pace
respectively of their asset purchase programs or eventual plans for
their balance sheets once asset purchases had been com-
Matthew D. Raskin,2 Vice President, Federal Reserve pleted. These announcements were broadly in line with
Bank of New York market participants’ expectations and elicited only a
modest reaction in financial markets. In Latin America
Andreas L. Hornstein, Senior Advisor, Federal Reserve and emerging Europe, some central banks recently tight-
Bank of Richmond ened policy to address rising inflation pressures. Inves-
tors remained focused on other vulnerabilities in emerg-
Alex Richter, Economic Policy Advisor and Senior ing markets, and concerns had grown recently about the
Economist, Federal Reserve Bank of Dallas possible implications of developments in China.
The manager turned next to a discussion of money mar-
kets and Federal Reserve operations. Domestic funding
3 Attended Tuesday’s session only. 4Attended the discussion of economic developments and the
outlook.
Minutes of the Meeting of September 21–22, 2021 Page 3
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conditions were stable over the period. The federal By unanimous vote, the Committee ratified the Desk’s
funds rate edged lower amid ongoing increases in re- domestic transactions over the intermeeting period.
serves, but it remained well within the target range; the There were no intervention operations in foreign curren-
Secured Overnight Financing Rate (SOFR) was steady at cies for the System’s account during the intermeeting pe-
5 basis points. Participation in the overnight reverse re- riod.
purchase agreement (ON RRP) facility increased to an
Staff Review of the Economic Situation
average of just over $1 trillion over the period, driven
The information available at the time of the Septem-
primarily by increased usage by government money mar-
ber 21–22 meeting suggested that U.S. real GDP was in-
ket funds. Market participants were attentive over the
creasing in the third quarter at a slower pace than in the
period to negotiations on the debt limit. Yields on
second quarter of the year. The pace of improvement in
Treasury bills maturing in mid-October to mid-Novem-
labor market conditions had remained very rapid in July
ber had become modestly elevated as investors reduced
but slowed sharply in August. Consumer price inflation
exposures to securities that could be at risk for delayed
in June and July—as measured by the 12-month percent-
payments. Market participants noted information in the
age change in the personal consumption expenditures
public domain about measures the Federal Reserve and
(PCE) price index—was elevated.
the Treasury could take around a debt limit event. They
pointed, in particular, to the October 2013 FOMC meet- Total nonfarm payroll employment increased sharply in
ing minutes, which highlighted that the Federal Reserve July but rose much less rapidly in August, with job gains
would use normal procedures in its operations, both as in the leisure and hospitality sector slowing to zero. In
the debt limit nears and in the event of a delayed pay- addition, state and local government employment was
ment. Market participants also focused on a 2013 report reported to have fallen in August, though abnormal sea-
by the Treasury Market Practices Group (TMPG), which sonal swings had likely distorted recent readings for this
outlined a process that could be used to delay principal sector. As of August, total payroll employment had re-
payments on Treasury securities by rolling forward the traced three-fourths of the losses seen at the onset of the
operational maturity date in order to maintain the ability pandemic. The unemployment rate had declined from
to transfer such securities over Fedwire®. The TMPG 5.9 percent in June to 5.2 percent in August; although
report noted that such a procedure would help support the unemployment rates for African Americans and His-
ongoing functioning of markets for securities with de- panics had also declined, on net, over this period, both
layed payments. This would maintain their eligibility in rates remained well above the national average. The la-
open market operations under normal procedures. Nev- bor force participation rate edged up, on net, and the
ertheless, market participants emphasized that, even employment-to-population (EPOP) ratio rose further in
with these procedures, a delayed payment would create July and August. Private-sector job openings, as meas-
severe and broad-based market disruption. ured by the Job Openings and Labor Turnover Survey,
increased further in July and continued to suggest that
In light of increased usage of the ON RRP facility and
labor demand was extraordinarily high. Initial claims for
the potential for continued downward pressure on
regular state unemployment insurance remained near the
short-term interest rates over the near term, the manager
pandemic-period low that had been reached in early Sep-
next discussed a staff proposal to increase the per-
tember but were still somewhat elevated relative to pre-
counterparty limit for the ON RRP facility to $160 bil-
pandemic levels. Weekly estimates of private-sector pay-
lion. Staff analysis suggested that the proposed increase
rolls constructed by the Board’s staff using data pro-
was likely to be sufficient to support effective policy im-
vided by the payroll processor ADP that were available
plementation for most foreseeable circumstances.
through early September pointed to a modest pickup in
The manager provided a brief update on the new repur- the pace of private employment gains relative to August.
chase agreement (repo) facilities that the Committee had
Average hourly earnings for all employees rose strongly
announced following its meeting in July. The Desk had
in July and August, with gains that were widespread
been working to onboard depository institutions as ad-
across industries. Recent monthly increases in average
ditional counterparties for the standing repo facility. In
hourly earnings appeared to reflect a combination of
addition, a number of foreign central banks had ex-
continued strong labor demand and increased difficul-
pressed intent to establish access to the Foreign and In-
ties in hiring. A staff measure of the 12-month change
ternational Monetary Authority Repo Facility.
in the median wage derived from the ADP data had also
pointed to strong wage growth, with a pace in August
Page 4 Federal Open Market Committee
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that was well above the growth rates seen before the Total real government purchases appeared to be increas-
pandemic. By contrast, the Wage Growth Tracker meas- ing in the third quarter after having moved lower in the
ure constructed by the Federal Reserve Bank of Atlanta second quarter. Available data suggested that federal
had not shown a similar pickup. The employment cost nondefense purchases were declining sharply in the third
index of hourly compensation in the private sector, quarter but that robust gains in real state and local pur-
which also includes benefit costs, rose at an annual rate chases were offsetting this decline.
of 3.6 percent over the 6 months ending in June, 1 per-
The U.S. international trade deficit remained high in
centage point faster than the 12-month change posted in
July. After rising in June, real goods imports fell back in
December 2020.
July, held down by a sizable decline in consumer goods
Inflation, as measured by either the PCE price index or imports, but the levels of consumer and total goods im-
the consumer price index (CPI), had been boosted by a ports remained well above pre-COVID-19 levels. Real
surge in demand as the economy reopened further, along goods exports edged up in July and were close to pre-
with the effects of production bottlenecks and supply pandemic levels. Bottlenecks in the global semiconduc-
constraints. Total PCE price inflation was 4.2 percent tor industry continued to weigh on exports and imports
over the 12 months ending in July, and core PCE price of automotive products, and shipping congestion con-
inflation, which excludes changes in consumer energy tinued to restrain trade overall. Exports and imports of
prices and many consumer food prices, was 3.6 percent services rose again in July, but they remained low relative
over the 12 months ending in July. In contrast, the to pre-pandemic levels, largely because international
trimmed mean measure of 12-month PCE inflation con- travel was still depressed.
structed by the Federal Reserve Bank of Dallas was
In the advanced foreign economies (AFEs), where high
2.0 percent in July. In August, the 12-month change in
vaccination rates had increased resilience to COVID-19
the CPI was 5.3 percent, while the core CPI rose 4.0 per-
outbreaks, incoming data were consistent with economic
cent over the same period. In the third quarter of 2021,
growth in the third quarter at a slightly faster pace than
the staff’s common inflation expectations index, which
in the second quarter. With the economic reopening un-
combines information from many indicators of inflation
der way, purchasing managers indexes for both manu-
expectations and inflation compensation, was little
facturing and services remained strong in Europe and
changed relative to the second quarter and was near its
Canada. Conversely, in emerging market economies
average over the decade before the pandemic.
(EMEs)—especially in Southeast Asia, where vaccina-
Although real PCE declined in July, the components of tion rates were lower—a global resurgence in COVID-
retail sales used to estimate PCE rose strongly in August, 19 infections due to the Delta variant led to renewals of
returning to levels seen in the spring. However, con- public health restrictions. These restrictions weakened
cerns about the course of the pandemic appeared to be retail sales and contributed to labor shortages and trans-
weighing on consumer services spending, as available in- portation congestion, disrupting global supply chains.
dicators pointed to a slowing in demand for services sen- Inflation abroad was elevated, reflecting reversals of
sitive to social distancing. In addition, measures of con- price declines early in the pandemic, past increases in en-
sumer confidence had moved lower in August. Demand ergy and commodity prices, upward pressures from sup-
for housing appeared to have remained very strong, but ply bottlenecks, and past exchange rate depreciations in
incoming data suggested that materials shortages and a some EMEs.
lack of developed lots for construction were restraining
Staff Review of the Financial Situation
residential building activity.
Financial market prices were little changed over the in-
Available indicators suggested that growth in business termeeting period. Concerns over the period about the
fixed investment was slowing somewhat in the third effects of COVID-19 developments on economic per-
quarter as supply bottlenecks—particularly for motor formance and, late in the period, about a heavily in-
vehicles—weighed on business equipment spending. debted Chinese property developer appeared to have
only marginal net effects on financial asset prices. The
Manufacturing output rose strongly in July and ticked up
incoming domestic economic data were generally viewed
further in August. In August, activity in the oil and gas
as mixed. Yields on Treasury securities of intermediate
sector and production of petrochemicals had been held
maturities increased modestly, the market-implied path
down by shutdowns related to Hurricane Ida. Supply
of the federal funds rate steepened, domestic equity
chain issues faced by a number of other industries also
prices were unchanged, and speculative-grade corporate
continued to be a drag on overall factory output.
Minutes of the Meeting of September 21–22, 2021 Page 5
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bond spreads narrowed modestly. Short-term funding of a downturn in the Chinese real estate sector intensi-
markets were stable. Market-based financing conditions fied later in the period, but effects on broader financial
were robust, and credit availability improved for riskier markets were limited. On balance, major foreign equity
borrowers. indexes were mixed, the broad dollar appreciated a
touch, and sovereign yields in most major AFEs in-
Yields on intermediate-maturity Treasury securities in-
creased moderately. In the euro area and the United
creased modestly, on net, amid mixed news on economic
Kingdom, higher-than-expected inflation data contrib-
activity and the pandemic, and slightly less-accommoda-
uted to the rise in yields and inflation compensation
tive-than-expected July FOMC communications.
measures.
Measures of inflation compensation declined modestly,
on net. The market-implied level of the effective federal In domestic credit markets, large nonfinancial firms had
funds rate for the ends of 2023 and 2024 rose 12 and ample access to market-based financing as market par-
17 basis points, respectively. ticipants appeared confident in the domestic corporate
credit outlook. After accounting for the seasonal sum-
Broad stock market prices were about unchanged, on
mer lull in activity, gross corporate bond issuance re-
net, over the intermeeting period. Early in the period,
mained solid in July and August. Leveraged loan issu-
concerns over the Delta variant were a headwind for
ance was also strong in July and August. Equity funding
stock prices. Prices recovered following the FDA’s first
raised through traditional initial public offerings re-
full approval of a COVID-19 vaccine and signs that the
mained robust over the summer, while equity issuance
Delta variant surge was starting to abate. Over the in-
through special purpose acquisition companies re-
termeeting period, spreads of yields on speculative-grade
mained at the subdued levels seen in recent months.
corporate bonds over those on comparable-maturity
Commercial and industrial (C&I) loans declined notably
Treasury securities narrowed slightly, on net. Invest-
through August, amid ongoing forgiveness of Paycheck
ment-grade corporate bond spreads were little changed,
Protection Program (PPP) loans. Excluding PPP loans,
on net, and spreads of municipal bond indexes increased
C&I loan balances were estimated to have been largely
slightly but remained well below pre-pandemic levels.
unchanged between June and July.
On September 20, stock market prices fell notably and
speculative-grade yield spreads widened amid rising con- The credit quality of large nonfinancial corporations re-
cerns about the creditworthiness of a Chinese property mained strong with a positive outlook. The volume of
developer, but these moves were mostly reversed during credit rating upgrades for nonfinancial bonds outpaced
the following day, particularly in the stock market. downgrades noticeably in July and August. Trailing de-
fault rates on corporate bonds and leveraged loans re-
Short-term funding markets were stable over the inter-
mained low, as did market indicators of future default
meeting period. The effective federal funds rate de-
expectations.
clined slightly, from 10 basis points at the beginning of
the period to 8 basis points at the end, while the SOFR In the municipal bond market, financing conditions re-
remained at 5 basis points throughout the period. Assets mained accommodative. Issuance of municipal debt was
under management (AUM) of government money mar- strong in July and August and indicators of credit quality
ket mutual funds increased modestly to near all-time of municipal debt remained healthy, though municipal
highs. Treasury bill supply continued to decline with the bond impairments—that is, credit events that are less se-
reinstatement of the debt ceiling. Higher AUM together vere than payment defaults—remained elevated in Au-
with declining Treasury bill supply led government gust. These impairments were concentrated in the re-
money market mutual funds to increase their participa- tirement and assisted living sector and represent a very
tion at the Federal Reserve’s ON RRP facility. Partici- small fraction of the municipal market.
pation in ON RRP operations increased from an average
Survey-based indicators suggest small business owners,
of $808 billion over the previous intermeeting period to
especially from COVID-sensitive sectors that include
$1.08 trillion.
lodging and food services, arts, entertainment and recre-
Foreign asset prices fluctuated moderately over the in- ation, and educational services, became more pessimistic
termeeting period as market participants continued to about their financial prospects, largely because of a
assess the effect of the Delta variant on global growth worsening of near-term expectations for sales and gen-
and inflation. Concerns about a potential default by a eral business conditions. Small business loan origina-
heavily indebted Chinese property developer and risks tions were above pre-pandemic levels in June and July,
Page 6 Federal Open Market Committee
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but increased concerns about the Delta variant de- GDP growth was projected to step down noticeably in
pressed loan demand in August. 2023 and to be roughly equal to potential output growth
in 2023 and 2024. However, the level of real GDP was
Financing conditions in commercial real estate (CRE)
expected to remain well above potential throughout the
improved over the intermeeting period amid increasing
projection period, resulting in a decline in the unemploy-
CRE property prices. CRE loan growth at banks
ment rate to historically low levels.
strengthened and issuance of commercial mortgage-
backed securities (CMBS) remained robust over the The staff’s near-term outlook for inflation was revised
summer. Spreads of agency CMBS were generally at or up further in response to incoming data, but the staff
below pre-pandemic levels. Strong investor appetite for continued to expect that this year’s rise in inflation
CMBS was supported by falling delinquency rates on would prove to be transitory. The 12-month change in
mortgages, although delinquency rates remained ele- total and core PCE prices was well above 2 percent in
vated for CMBS backed by hotel and retail properties. July, and available data suggested that PCE price infla-
Financing remained limited for the hard-hit hotel sector. tion had remained high in August. The staff interpreted
recent inflation data as indicating that supply constraints
In the residential mortgage market, financing conditions
were putting a larger amount of upward pressure on
remained accommodative particularly for borrowers
prices than previously anticipated; relative to the July
who met standard conforming loan criteria. Mortgage
projection, these supply constraints were also expected
rates increased slightly over the intermeeting period but
to take longer to resolve. As a result, the 12-month
remained very low by historical standards. Credit avail-
change in PCE prices was projected to hold roughly
ability continued to improve, especially for jumbo loans
steady over the remainder of 2021 and to end the year
and lower-score Federal Housing Administration bor-
well above 2 percent. Over the following year, the boost
rowers. Indicators of mortgage originations for home-
to consumer prices caused by supply issues was expected
purchases and refinancing were solid through August.
to partly reverse and import prices were expected to de-
The share of mortgages in forbearance declined further
celerate sharply. PCE price inflation was therefore ex-
in July and August.
pected to step down to a little below 2 percent in 2022;
Financing conditions for consumer credit remained ac- thereafter, additional increases in resource utilization
commodative for most borrowers, especially those with were expected to cause it to gradually edge higher and to
stronger credit scores. Consumer credit and the credit reach 2 percent in 2024.
card market expanded at a strong pace in June before
The staff continued to judge that the risks to the baseline
stepping down somewhat in July. Conditions for
projection for economic activity were skewed to the
nonprime consumers in the credit card market eased
downside. In particular, the future course of the pan-
from tight levels. Auto loan growth slowed in June and
demic was seen as an important source of downside risk.
July from its brisk pace in May. Conditions in the asset-
The staff also continued to judge that the risks around
backed securities market were robust over the intermeet-
the inflation projection were tilted to the upside, with the
ing period.
possibility of more severe and persistent supply issues
Staff Economic Outlook viewed as especially salient. In addition, the staff
The projection for U.S. economic activity prepared by pointed to a risk that longer-run inflation expectations
the staff for the September FOMC meeting was broadly would move appreciably higher and lead to persistently
similar to the July projection. In the second half of 2021, elevated inflation.
supply constraints were expected to resolve more slowly
Participants’ Views on Current Economic Condi-
than previously assumed; in addition, the recent rise in
tions and the Economic Outlook
COVID-19 cases was viewed as likely to exert a larger
In conjunction with this FOMC meeting, participants
amount of restraint on consumer spending, hiring, and
submitted their projections of the most likely outcomes
labor supply than previously anticipated. Even so, real
for real GDP growth, the unemployment rate, and infla-
GDP was expected to post a sizable gain over the second
tion for each year from 2021 through 2024 and over the
half of 2021 and over the year as a whole, resulting in a
longer run based on their individual assessments of ap-
correspondingly large decline in the unemployment rate.
propriate monetary policy, including the path of the fed-
In 2022, GDP was expected to rise more slowly than in
eral funds rate. The longer-run projections represented
2021 but at a still-solid pace, supported by the continued
each participant’s assessment of the rate to which each
reopening of the economy and an easing of supply con-
straints. With the boost from these factors fading, real
Minutes of the Meeting of September 21–22, 2021 Page 7
_____________________________________________________________________________________________
variable would be expected to converge, over time, un- spread supply chain bottlenecks as well as labor short-
der appropriate monetary policy and in the absence of ages. Some participants commented that the recent
further shocks to the economy. A Summary of Eco- global wave of COVID-19 infections and associated
nomic Projections was released to the public following business shutdowns were exacerbating or prolonging
the conclusion of the meeting. these problems. The supply chain bottlenecks were cre-
ating challenges for a number of manufacturers; the
In their discussion of current conditions, participants
problems were seen as especially acute for the motor ve-
noted that, with progress on vaccinations and strong
hicle industry, where the shortages of semiconductor
policy support, indicators of economic activity and em-
chips had sharply curtailed production. Retail industries
ployment had continued to strengthen. The sectors
were also facing various bottlenecks, including those
most adversely affected by the pandemic had improved
stemming from port congestion and delays in ground
in recent months, but the rise in COVID-19 cases had
transportation. Participants noted that their District
slowed their recovery. Inflation was elevated, largely re-
contacts generally did not expect these bottlenecks to be
flecting transitory factors. Overall financial conditions
fully resolved until sometime next year or even later. A
remained accommodative, in part reflecting policy
couple of participants noted that inventories-to-sales ra-
measures to support the economy and the flow of credit
tios were at or near record-low levels in many industries,
to U.S. households and businesses. Participants noted
and the need to rebuild them would boost business in-
that the path of the economy continued to depend on
vestment going forward. Participants also discussed the
the course of the virus. Progress on vaccinations would
developments in oil, gasoline, and agricultural sectors. A
likely continue to reduce the effects of the public health
couple of participants pointed out that Hurricane Ida
crisis on the economy, but risks to the economic outlook
significantly affected the oil and gas industries, curtailing
remained.
U.S. offshore production at a time of low inventories. A
Participants observed that economic activity had contin- couple of other participants noted that elevated crop
ued to expand in recent months, though at a less rapid prices were continuing to boost income in the agricul-
pace than in the first half of the year. They marked down tural sector.
their projections of real GDP growth for the year, point-
Participants noted that labor market conditions had con-
ing to a reassessment of the severity and likely duration
tinued to improve in recent months. The unemploy-
of supply constraints or of the effects of the spread of
ment rate declined further to 5.2 percent in August, and
the Delta variant on the economy. Still, participants
a few participants noted a further pickup in recent
foresaw rapid growth this year, and several highlighted
months in the level of activity indicator in the Federal
that the economy had shown resilience in the face of the
Reserve Bank of Kansas City’s Labor Market Conditions
recent wave of infections.
Indicators. After a rapid pace of almost 1 million per
In their discussion of the household sector, participants month in June and July, job gains slowed to 235,000 in
noted that consumer spending had decelerated in recent August as the resurgence of COVID-19 cases weighed
months after expanding at a very rapid pace in the first on employment in high-contact service sectors, particu-
half of the year. The spread of the Delta variant was larly in the leisure and hospitality sector. Meanwhile, the
weighing on spending for some consumer services, and labor force participation rate was little changed, remain-
low inventories and high prices due to supply constraints ing at a lower level than its pre-pandemic values. Some
were restraining spending on many goods, most notably participants noted that the increase in labor force partic-
motor vehicles. Nonetheless, participants expected the ipation that they had expected had not yet materialized
accumulated stock of savings, the release of pent-up de- in the wake of the reopening of schools and the expira-
mand, and progress on vaccinations to continue to sup- tion of the extended unemployment benefits, and that
port household spending in coming months. Partici- this likely reflected in part concerns about the resurgence
pants noted that residential construction had been re- of the virus, childcare challenges, and the uncertainties
strained by shortages of materials and other inputs and generated by ongoing disruptions to in-person school-
that home sales had been held back by limited supplies ing. Participants expected the labor market to continue
of available homes. to improve in coming months. Several participants in-
dicated that a rise in the labor force participation rate
With respect to the business sector, participants ob-
might lag the improvements in other indicators such as
served that firms in a number of industries were facing
the unemployment rate—a pattern consistent with past
challenges keeping up with strong demand due to wide-
business cycle recoveries. Participants expressed a range
Page 8 Federal Open Market Committee
_____________________________________________________________________________________________
of views regarding the extent to which they expected the there was not yet evidence that robust wage growth was
labor force participation rate and the EPOP ratio would exerting upward pressure on prices to a significant de-
move back to their pre-pandemic levels. Various partic- gree, but also that the possibility merited close monitor-
ipants suggested that a complete return to pre-pandemic ing.
conditions was unlikely, as the pandemic had prompted
In their comments on inflation expectations, several par-
reductions in the workforce that were likely to persist,
ticipants observed that measures of longer-term infla-
including a large number of retirements and other depar-
tion expectations, including TIPS- and survey-based
tures from the labor force. A number of others, how-
measures, had remained in ranges that were viewed as
ever, assessed that once the COVID-related concerns
broadly consistent with the Committee’s longer-run in-
that were currently weighing on labor force participation
flation goal, or that the distribution across households
passed, the participation rate and the EPOP ratio could
of longer-term expected inflation had remained stable
return to, or even exceed, the pre-pandemic levels.
over the past two years. Many participants noted the
Some participants remarked that the labor market recov-
substantial rise in one- and three-year measures of infla-
ery continued to be uneven across demographic and in-
tion expectations in the Federal Reserve Bank of New
come groups and across sectors, with the recovery being
York’s Survey of Consumer Expectations or in the one-
particularly slow for women with young children and
year measure in the University of Michigan Surveys of
people with lower incomes.
Consumers. A few participants remarked that these sur-
Participants noted that their District contacts had vey measures tended to be sensitive to movements in ac-
broadly reported having difficulty hiring workers. The tual inflation, or that the recent rise was consistent with
labor shortages were causing firms to reduce hours and previous historical relationships between such measures
scale back production while also leading employers to and actual inflation.
provide incentives to attract and retain workers, includ-
In discussing the uncertainty and risks associated with
ing wage increases and signing and retention bonuses.
the economic outlook, participants noted that uncer-
The rate of nominal wage growth had been robust in re-
tainty remained high. A number of participants judged
cent data; for example, average hourly earnings were up
that the uncertain course of the virus, supply chain dis-
4.9 percent at an annualized rate over the past six
ruptions, and labor shortages complicated the task of in-
months.
terpreting incoming economic data and assessing pro-
In their discussion of inflation, participants observed gress toward the Committee’s goals. Participants gener-
that the inflation rate was elevated, and they expected ally saw the risks to the outlook for economic activity as
that it would likely remain so in coming months before broadly balanced. Uncertainty around the course of the
moderating. Participants marked up their inflation pro- virus, the resolution of supply constraints, and fiscal
jections, as they assessed that supply constraints in prod- measures were cited as presenting both upside and
uct and labor markets were larger and likely to be longer downside risks. In addition, some participants men-
lasting than previously anticipated. Some participants tioned the risks associated with high asset valuations in
expressed concerns that elevated rates of inflation could the United States and abroad, and a number of partici-
feed through into longer-term inflation expectations of pants commented on the importance of resolving the is-
households and businesses or saw recent inflation data sues involving the federal government budget and debt
as suggestive of broader inflation pressures. Several ceiling in a timely manner. Most participants saw infla-
other participants pointed out that the largest contribu- tion risks as weighted to the upside because of concerns
tors to the recent elevated measures of inflation were a that supply disruptions and labor shortages might last
handful of COVID-related, pandemic-sensitive catego- longer and might have larger or more persistent effects
ries in which specific, identifiable bottlenecks were at on prices and wages than they currently assumed. A few
play. This observation suggested that the upward pres- participants commented that there were also some
sure on prices would abate as the COVID-related de- downside risks for inflation, as the factors that had held
mand and supply imbalances subsided. These partici- inflation down over the previous long expansion were
pants noted that prices in some of those categories likely still in place.
showed signs of stabilizing or even turned down of late.
In their consideration of the stance of monetary policy,
Many participants pointed out that the owners’ equiva-
participants reaffirmed the Federal Reserve’s commit-
lent rent component of price indexes should be moni-
ment to using its full range of tools to support the U.S.
tored carefully, as rising home prices could lead to up-
ward pressure on rents. A few participants noted that
Minutes of the Meeting of September 21–22, 2021 Page 9
_____________________________________________________________________________________________
economy during this challenging time, thereby promot- these participants also suggested that labor supply con-
ing the Committee’s statutory goals of maximum em- straints were the main impediments to further improve-
ployment and price stability. Participants judged that the ment in labor market conditions rather than lack of de-
current stance of monetary policy remained appropriate mand. They noted that adding monetary policy accom-
to promote maximum employment as well as to achieve modation at this time would not address such con-
inflation that averages 2 percent over time and longer- straints or that the costs of continuing asset purchases
term inflation expectations that are well anchored at might be beginning to exceed their benefits. All partici-
2 percent. Participants also reiterated that the existing pants agreed that it would be appropriate for the current
outcome-based guidance implied that the paths of the meeting’s postmeeting statement to relay the Commit-
federal funds rate and the balance sheet would depend tee’s judgment that, if progress continued broadly as ex-
on actual progress toward reaching the Committee’s pected, a moderation in the pace of asset purchases may
maximum-employment and inflation goals. soon be warranted.
Participants resumed their discussions on the progress Participants also expressed their views on how slowing
made toward the Committee’s goals since December in the pace of purchases might proceed. In particular,
2020, when the Committee adopted its guidance regard- participants commented on an illustrative path, devel-
ing asset purchases and indicated that purchases would oped by the staff and reflecting participants’ discussions
continue at their current pace until substantial further at the Committee’s July meeting, that gave the speed and
progress had been made toward the Committee’s goals composition associated with a tapering of asset pur-
of maximum employment and price stability. These pur- chases. The illustrative tapering path was designed to be
chases had been a critical part of the Federal Reserve’s simple to communicate and entailed a gradual reduction
efforts to foster smooth financial market functioning in the pace of net asset purchases that, if begun later this
and accommodative financial conditions, thereby sup- year, would lead the Federal Reserve to end purchases
porting the flow of credit to households and businesses around the middle of next year. The path featured
as well as the economic recovery. Most participants re- monthly reductions in the pace of asset purchases, by
marked that the standard of “substantial further pro- $10 billion in the case of Treasury securities and $5 bil-
gress” had been met with regard to the Committee’s lion in the case of agency mortgage-backed securities
price-stability goal or that it was likely to be met soon. (MBS). Participants generally commented that the illus-
With regard to the Committee’s maximum-employment trative path provided a straightforward and appropriate
goal, participants considered the cumulative degree of template that policymakers might follow, and a couple
improvement in the labor market since December 2020. of participants observed that giving advance notice to
In doing so, participants cited the progress recorded in a the general public of a plan along these lines may reduce
number of individual series, including, among others, the risk of an adverse market reaction to a moderation
the employment-to-population ratio, the unemployment in asset purchases. Participants noted that, in keeping
rate, claims for unemployment insurance, job openings, with the outcome-based standard for initiating a tapering
nominal wage growth, and increases in payrolls, as well of asset purchases, the Committee could adjust the pace
as in summary measures of the labor situation. Some of the moderation of its purchases if economic develop-
participants observed that progress on labor force par- ments were to differ substantially from what they ex-
ticipation was lagging. Many participants noted that al- pected. Several participants indicated that they preferred
though the economic recovery had slowed recently and to proceed with a more rapid moderation of purchases
the August increase in payrolls had fallen short of expec- than described in the illustrative examples.
tations, the labor market had continued to show im-
provement since the Committee’s previous meeting. A No decision to proceed with a moderation of asset pur-
number of participants assessed that the standard of chases was made at the meeting, but participants gener-
substantial further progress toward the goal of maxi- ally assessed that, provided that the economic recovery
mum employment had not yet been attained but that, if remained broadly on track, a gradual tapering process
the economy proceeded roughly as they anticipated, it that concluded around the middle of next year would
may soon be reached. On the basis of the cumulative likely be appropriate. Participants noted that if a deci-
performance of the labor market since December 2020, sion to begin tapering purchases occurred at the next
a number of other participants indicated that they be- meeting, the process of tapering could commence with
lieved that the test of “substantial further progress” to- the monthly purchase calendars beginning in either mid-
ward maximum employment had been met. Some of November or mid-December.
Page 10 Federal Open Market Committee
_____________________________________________________________________________________________
Many participants remarked upon risk-management and thereby bolster the credibility of the Committee’s
considerations and the way in which these figured into new policy framework, facilitating the achievement of
their thinking on asset purchases and the appropriate both maximum employment and price stability. In con-
policy stance. A number of downside risks to the eco- trast, a number of participants raised the possibility of
nomic outlook were cited, including a potential tighten- beginning to increase the target range by the end of next
ing of financial conditions, the possibility that another year because they expected that the labor market and in-
rise in COVID-19 cases would slow the economic re- flation outcomes specified in the Committee’s guidance
covery by more than expected, and the prospect that fis- on the federal funds rate might be achieved by that time;
cal policy could become a source of economic head- some of these participants saw inflation as likely to re-
winds as the effects of previous support measures re- main elevated in 2022 with risks to the upside.
ceded. Upside risks to the economic outlook included
Committee Policy Action
the possibility that there would be additional expansion-
In their discussion of monetary policy for this meeting,
ary fiscal actions or that consumer spending would rise
members agreed that with progress on vaccinations and
by more than expected as households reduced the large
strong policy support, indicators of economic activity
volume of savings that they had accumulated during the
and employment had continued to strengthen. They
pandemic. With regard to inflation, upside risks cited
noted that the sectors most adversely affected by the
included the possibility that elevated levels of inflation
pandemic had improved in recent months but that the
would continue for longer than expected, especially if la-
rise in COVID-19 cases had slowed their recovery. In-
bor and other supply shortages proved more persistent
flation was elevated, largely reflecting transitory factors.
than currently anticipated, or that longer-term inflation
Overall financial conditions remained accommodative,
expectations might move above levels consistent with
in part reflecting policy measures to support the econ-
the Committee’s longer-term inflation objective of
omy and the flow of credit to U.S. households and busi-
2 percent. Downside risks to inflation included the pos-
nesses. Members also acknowledged that the path of the
sibility of a decline in inflation expectations that might
economy continued to depend on the course of the vi-
occur if the public misconstrued the Federal Reserve’s
rus. Progress on vaccinations would likely continue to
reaction function as less accommodative than it actually
reduce the effects of the public health crisis on the econ-
was. Several participants expressed concern that the
omy, but risks to the economic outlook remained.
high degree of accommodation being provided by mon-
etary policy, including through continued asset pur- Members agreed that the Federal Reserve was commit-
chases, could increase risks to financial stability. ted to using its full range of tools to support the U.S.
economy in this challenging time, thereby promoting its
Participants reaffirmed that the Committee’s “substan-
maximum employment and price stability goals. All
tial further progress” standard regarding its asset pur-
members reaffirmed that, in accordance with the Com-
chases was distinct from the criteria given in its forward
mittee’s goals to achieve maximum employment and in-
guidance on the federal funds rate and that a policy shift
flation at the rate of 2 percent over the longer run, and
toward a moderation of asset purchases provided no di-
with inflation having run persistently below this longer-
rect signal about its interest rate policy. Rather, the
run goal, they would aim to achieve inflation moderately
Committee had articulated a different, and more strin-
above 2 percent for some time so that inflation averages
gent, test concerning the conditions that would need to
2 percent over time and longer-term inflation expecta-
be met before it started raising the target range for the
tions remain well anchored at 2 percent. Members ex-
federal funds rate. Various participants stressed that
pected to maintain an accommodative stance of mone-
economic conditions were likely to justify keeping the
tary policy until those outcomes were achieved.
rate at or near its lower bound over the next couple of
years. In addition to noting that the economy was still All members agreed to keep the target range for the fed-
well below maximum employment, several of these par- eral funds rate at 0 to ¼ percent, and they expected that
ticipants suggested that there would likely be sustained it would be appropriate to maintain this target range un-
downward pressure on inflation in the years ahead. til labor market conditions had reached levels consistent
These participants stated that, in such circumstances, a with the Committee’s assessments of maximum employ-
major challenge facing policymakers—especially in the ment and inflation had risen to 2 percent and is on track
presence of the effective lower bound on the federal to moderately exceed 2 percent for some time. Last De-
funds rate—was to maintain a policy stance sufficiently cember, the Committee indicated that it would continue
accommodative to keep average inflation at 2 percent to increase its holdings of Treasury securities by at least
Minutes of the Meeting of September 21–22, 2021 Page 11
_____________________________________________________________________________________________
$80 billion per month and of agency MBS by at least of New York, until instructed otherwise, to execute
$40 billion per month until substantial further progress transactions in the SOMA in accordance with the fol-
has been made toward its maximum employment and lowing domestic policy directive, for release at 2:00 p.m.:
price stability goals. The members commented that,
“Effective September 23, 2021, the Federal Open
since then, the economy had made progress toward
Market Committee directs the Desk to:
these goals and that, if progress continued broadly as ex-
pected, a moderation in the pace of asset purchases may Undertake open market operations as nec-
soon be warranted. They judged that these asset pur- essary to maintain the federal funds rate in
chases would help foster smooth market functioning a target range of 0 to ¼ percent.
and accommodative financial conditions, thereby sup-
Increase the System Open Market Account
porting the flow of credit to households and businesses.
holdings of Treasury securities by $80 bil-
Members agreed that, in assessing the appropriate stance lion per month and of agency mortgage-
of monetary policy, they would continue to monitor the backed securities (MBS) by $40 billion per
implications of incoming information for the economic month.
outlook and that they would be prepared to adjust the
Increase holdings of Treasury securities and
stance of monetary policy as appropriate in the event
that risks emerged that could impede the attainment of agency MBS by additional amounts and
the Committee’s goals. Members also concurred that, in purchase agency commercial mortgage-
assessing the appropriate stance of monetary policy, they backed securities (CMBS) as needed to sus-
would take into account a wide range of information, in- tain smooth functioning of markets for
cluding readings on public health, labor market condi- these securities.
tions, inflation pressures and inflation expectations, and Conduct overnight repurchase agreement
financial and international developments. operations with a minimum bid rate of
Members agreed that the postmeeting statement should 0.25 percent and with an aggregate opera-
acknowledge the slowing of the economic recovery, as tion limit of $500 billion; the aggregate op-
indicated in data received since the July meeting, as well eration limit can be temporarily increased at
as ongoing elevated inflation readings. In light of these the discretion of the Chair.
developments, they agreed that the Committee should Conduct overnight reverse repurchase
indicate that the sectors of the economy most adversely agreement operations at an offering rate of
affected by the pandemic had improved in recent 0.05 percent and with a per-counterparty
months but that the rise in COVID-19 cases had slowed limit of $160 billion per day; the per-
their recovery, and they also concurred that it would be counterparty limit can be temporarily in-
appropriate to characterize inflation as being “elevated” creased at the discretion of the Chair.
in place of stating that inflation had “risen.” Members
further decided to add to the postmeeting statement an Roll over at auction all principal payments
indication that if progress toward the maximum-employ- from the Federal Reserve’s holdings of
ment and price-stability goals continued broadly as ex- Treasury securities and reinvest all principal
pected, the Committee judged that a moderation in the payments from the Federal Reserve’s hold-
pace of asset purchases may soon be warranted. Mem- ings of agency debt and agency MBS in
bers agreed that the addition of this language was an ap- agency MBS.
propriate means of acknowledging that, in the near fu- Allow modest deviations from stated
ture, the Committee would likely assess that the standard amounts for purchases and reinvestments,
for reducing the pace of net asset purchases had been if needed for operational reasons.
met.
Engage in dollar roll and coupon swap
With regard to the directive to the Desk, members transactions as necessary to facilitate settle-
agreed that the directive should incorporate the pro- ment of the Federal Reserve’s agency MBS
posed increase in the per-counterparty limit for the ON transactions.”
RRP facility to $160 billion.
The vote also encompassed approval of the statement
At the conclusion of the discussion, the Committee below for release at 2:00 p.m.:
voted to authorize and direct the Federal Reserve Bank
Page 12 Federal Open Market Committee
_____________________________________________________________________________________________
“The Federal Reserve is committed to using its soon be warranted. These asset purchases help
full range of tools to support the U.S. economy foster smooth market functioning and accom-
in this challenging time, thereby promoting its modative financial conditions, thereby support-
maximum employment and price stability goals. ing the flow of credit to households and busi-
nesses.
With progress on vaccinations and strong policy
support, indicators of economic activity and In assessing the appropriate stance of monetary
employment have continued to strengthen. The policy, the Committee will continue to monitor
sectors most adversely affected by the pandemic the implications of incoming information for
have improved in recent months, but the rise in the economic outlook. The Committee would
COVID-19 cases has slowed their recovery. In- be prepared to adjust the stance of monetary
flation is elevated, largely reflecting transitory policy as appropriate if risks emerge that could
factors. Overall financial conditions remain ac- impede the attainment of the Committee’s
commodative, in part reflecting policy measures goals. The Committee’s assessments will take
to support the economy and the flow of credit into account a wide range of information, in-
to U.S. households and businesses. cluding readings on public health, labor market
conditions, inflation pressures and inflation ex-
The path of the economy continues to depend
pectations, and financial and international de-
on the course of the virus. Progress on vaccina-
velopments.”
tions will likely continue to reduce the effects of
the public health crisis on the economy, but Voting for this action: Jerome H. Powell, John C.
risks to the economic outlook remain. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle
W. Bowman, Lael Brainard, Richard H. Clarida, Mary C.
The Committee seeks to achieve maximum em-
Daly, Charles L. Evans, Randal K. Quarles, and
ployment and inflation at the rate of 2 percent
Christopher J. Waller.
over the longer run. With inflation having run
persistently below this longer-run goal, the Voting against this action: None.
Committee will aim to achieve inflation moder-
Consistent with the Committee’s decision to leave the
ately above 2 percent for some time so that in-
target range for the federal funds rate unchanged, the
flation averages 2 percent over time and
Board voted unanimously to maintain the interest rate
longer‑term inflation expectations remain well paid on reserve balances at 0.15 percent, effective Sep-
anchored at 2 percent. The Committee expects tember 23, 2021. The Board also voted unanimously to
to maintain an accommodative stance of mone- approve establishment of the primary credit rate at the
tary policy until these outcomes are achieved. existing level of 0.25 percent, effective Septem-
The Committee decided to keep the target range ber 23, 2021.
for the federal funds rate at 0 to ¼ percent and
expects it will be appropriate to maintain this Following the FOMC policy vote, the Chair emphasized
target range until labor market conditions have that maintaining the public trust is absolutely essential
reached levels consistent with the Committee’s for the work of the Federal Reserve. In light of recent
assessments of maximum employment and in- questions regarding the financial transactions of senior
flation has risen to 2 percent and is on track to officials, the Chair indicated that the staff would conduct
moderately exceed 2 percent for some time. a thorough review of the Federal Reserve’s current rules
Last December, the Committee indicated that it and regulations regarding the financial holdings and
would continue to increase its holdings of practices of Federal Reserve officials. This deliberate
Treasury securities by at least $80 billion per and thoughtful review will focus on strengthening Fed-
month and of agency mortgage‑backed securi- eral Reserve rules and standards in ways that will help
ties by at least $40 billion per month until sub- guard against even the appearance of conflicts of interest
stantial further progress has been made toward or any other improprieties.
its maximum employment and price stability It was agreed that the next meeting of the Committee
goals. Since then, the economy has made pro- would be held on Tuesday–Wednesday, November 2–
gress toward these goals. If progress continues 3, 2021. The meeting adjourned at 10:45 a.m. on Sep-
broadly as expected, the Committee judges that tember 22, 2021.
a moderation in the pace of asset purchases may
Minutes of the Meeting of September 21–22, 2021 Page 13
_____________________________________________________________________________________________
Notation Vote
By notation vote completed on August 17, 2021, the
Committee unanimously approved the minutes of the
Committee meeting held on July 27–28, 2021.
_______________________
James A. Clouse
Secretary