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Page 1

Minutes of the Federal Open Market Committee

July 25–26, 2023

A joint meeting of the Federal Open Market Committee Julie Ann Remache, Deputy Manager, System Open
and the Board of Governors of the Federal Reserve Sys- Market Account
tem was held in the offices of the Board of Governors
David Altig, Executive Vice President, Federal Reserve
on Tuesday, July 25, 2023, at 10:00 a.m. and continued
Bank of Atlanta
on Wednesday, July 26, 2023, at 9:00 a.m. 1
Penelope A. Beattie, 2 Section Chief, Office of the
Attendance
Secretary, Board
Jerome H. Powell, Chair
John C. Williams, Vice Chair Brent Bundick, Senior Research and Policy Advisor,
Michael S. Barr Federal Reserve Bank of Kansas City
Michelle W. Bowman
Juan C. Climent, Special Adviser to the Board, Division
Lisa D. Cook
of Board Members, Board
Austan D. Goolsbee
Patrick Harker Stephanie E. Curcuru, 3 Deputy Director, Division of
Philip N. Jefferson International Finance, Board
Neel Kashkari Rochelle M. Edge, Deputy Director, Division of
Lorie K. Logan Monetary Affairs, Board
Christopher J. Waller
Matthew J. Eichner, 4 Director, Division of Reserve
Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Bank Operations and Payment Systems, Board
and Loretta J. Mester, Alternate Members of the
Committee Eric C. Engstrom, Associate Director, Division of
Monetary Affairs and Division of Research and
Susan M. Collins, President of the Federal Reserve Statistics, Board
Bank of Boston
Huberto M. Ennis, Group Vice President, Federal
Kelly J. Dubbert and Kathleen O’Neill Paese, Interim Reserve Bank of Richmond
Presidents of the Federal Reserve Banks of Kansas
City and St. Louis, respectively Erin E. Ferris, Principal Economist, Division of
Monetary Affairs, Board
Joshua Gallin, Secretary
Brian J. Bonis, Assistant Secretary Glenn Follette, Associate Director, Division of
Michelle A. Smith, Assistant Secretary Research and Statistics, Board
Mark E. Van Der Weide, General Counsel Jennifer Gallagher, Assistant to the Board, Division of
Richard Ostrander, Deputy General Counsel Board Members, Board
Trevor A. Reeve, Economist
Stacey Tevlin, Economist Peter M. Garavuso, Senior Information Manager,
Beth Anne Wilson, Economist Division of Monetary Affairs, Board
Carlos Garriga, Senior Vice President, Federal Reserve
Shaghil Ahmed, James A. Clouse, Eric M. Engen, Anna
Bank of St. Louis
Paulson, Andrea Raffo, and William Wascher,
Associate Economists Michael S. Gibson, Director, Division of Supervision
and Regulation, Board
Roberto Perli, Manager, System Open Market Account

1 The Federal Open Market Committee is referenced as the 2 Attended through the discussion of the economic and finan-
“FOMC” and the “Committee” in these minutes; the Board cial situation and all of Wednesday’s session.
of Governors of the Federal Reserve System is referenced as 3 Attended Tuesday’s session only.

the “Board” in these minutes. 4 Attended through the discussion of developments in finan-

cial markets and open market operations.

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Page 2 Federal Open Market Committee

Christine Graham, 5 Special Adviser to the Board, Paolo A. Pesenti, Director of Monetary Policy
Division of Board Members, Board Research, Federal Reserve Bank of New York
Luca Guerrieri, Associate Director, Division of Damjan Pfajar, Group Manager, Division of Monetary
International Finance, Board Affairs, Board
Christopher J. Gust, Associate Director, Division of Samuel Schulhofer-Wohl, Senior Vice President,
Monetary Affairs, Board Federal Reserve Bank of Dallas
Valerie S. Hinojosa, Section Chief, Division of Donald Keith Sill, Senior Vice President, Federal
Monetary Affairs, Board Reserve Bank of Philadelphia
Jane E. Ihrig, Special Adviser to the Board, Division of Nitish Ranjan Sinha, Special Adviser to the Board,
Board Members, Board Division of Board Members, Board
Callum Jones, Senior Economist, Division of Monetary Dafina Stewart, Special Adviser to the Board, Division
Affairs, Board of Board Members, Board
Michael T. Kiley, Deputy Director, Division of Gustavo A. Suarez, Assistant Director, Division of
Financial Stability, Board Research and Statistics, Board
David E. Lebow, Senior Associate Director, Division Brett Takacs, Senior Communications Analyst,
of Research and Statistics, Board Division of Information Technology, Board
Sylvain Leduc, Director of Research, Federal Reserve Jenny Tang, Vice President, Federal Reserve Bank of
Bank of San Francisco Boston
Andreas Lehnert, Director, Division of Financial Willem Van Zandweghe, Assistant Vice President,
Stability, Board Federal Reserve Bank of Cleveland
Kurt F. Lewis, Special Adviser to the Board, Division Annette Vissing-Jørgensen, Senior Adviser, Division of
of Board Members, Board Monetary Affairs, Board
Dan Li, Assistant Director, Division of Monetary Jeffrey D. Walker,4 Associate Director, Division of
Affairs, Board Reserve Bank Operations and Payment Systems,
Board
Laura Lipscomb, Special Adviser to the Board,
Division of Board Members, Board Paul R. Wood, Special Adviser to the Board, Division
of Board Members, Board
David López-Salido, Senior Associate Director,
Division of Monetary Affairs, Board Rebecca Zarutskie, Special Adviser to the Board,
Division of Board Members, Board
Ann E. Misback, Secretary, Office of the Secretary,
Board Developments in Financial Markets and Open
Market Operations
Juan M. Morelli, Economist, Division of Monetary
The manager turned first to a review of developments in
Affairs, Board
financial markets over the intermeeting period. Market
Norman J. Morin, Deputy Associate Director, Division participants interpreted data releases as generally
of Research and Statistics, Board demonstrating economic resilience and a further easing
of inflation pressures. The market-implied peak for the
Michelle M. Neal, Head of Markets, Federal Reserve
federal funds rate rose in response to data pointing to a
Bank of New York
robust economy but retraced part of that move after the
Edward Nelson, Senior Adviser, Division of Monetary June consumer price index (CPI) release was interpreted
Affairs, Board by market participants as softer than anticipated. Even
as market prices shifted to indicate a slightly more re-

5 Attended through the discussion of the economic and finan-

cial situation.
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Minutes of the Meeting of July 25–26, 2023 Page 3

strictive expected policy path, broader financial condi- decline in ON RRP balances for the period. A further
tions eased a bit, reflecting in large part gains in equity decline in ON RRP balances was deemed probable amid
prices and tighter credit spreads. Notably, share prices sustained projected Treasury bill issuance, further reduc-
for bank equity also appreciated over the intermeeting tions in the size of the Federal Reserve’s balance sheet
period as concerns about the banking sector continued in accordance with the previously announced Plans for
to dissipate. Spot and forward measures of inflation Reducing the Size of the Federal Reserve’s Balance
compensation based on Treasury Inflation-Protected Sheet, and a possible further reduction in policy uncer-
Securities were little changed over the intermeeting pe- tainty that could incentivize money funds to extend the
riod at levels broadly consistent with the Committee’s duration of their portfolios. In the July Desk Survey of
2 percent longer-run goal, and longer-term survey- and Primary Dealers, respondents expected lower ON RRP
market-based measures continued to point to inflation balances and higher bank reserves by the end of the year,
expectations being firmly anchored. Market-implied compared with the June survey.
peak policy rates in most advanced foreign economies
By unanimous vote, the Committee ratified the Desk’s
(AFEs) rose further this period, and the dollar depreci-
domestic transactions over the intermeeting period.
ated modestly.
There were no intervention operations in foreign curren-
Respondents to the Open Market Desk’s Survey of Pri- cies for the System’s account during the intermeeting pe-
mary Dealers and Survey of Market Participants in July riod.
continued to place significant probability of a recession
Staff Review of the Economic Situation
occurring by the end of 2024. However, the timing of a
The information available at the time of the July 25–26
recession expected by survey respondents was again
meeting suggested that real gross domestic product
pushed later, and the probability of avoiding a recession
(GDP) rose at a moderate pace over the first half of the
through 2024 grew noticeably. Survey respondents an-
year. The labor market remained very tight, though the
ticipated that both headline and core personal consump-
imbalance between demand and supply in the labor mar-
tion expenditures (PCE) inflation will decline to 2 per-
ket was gradually diminishing. Consumer price infla-
cent by the end of 2025.
tion—as measured by the 12-month percent change in
There was a strong anticipation, evident in both market- the price index for PCE—remained elevated in May, and
based measures and responses to the Desk’s surveys, available information suggested that inflation declined
that the Committee would raise the target range 25 basis but remained elevated in June.
points at the July FOMC meeting. Most survey respond-
In the second quarter, total nonfarm payroll employ-
ents had a modal expectation that a July rate hike would
ment posted its slowest average monthly increase since
be the last of this tightening cycle, although most re-
the recovery began in mid-2020, though payroll gains re-
spondents also perceived that additional monetary pol-
mained robust compared with those seen before the
icy tightening after the July FOMC meeting was possible.
pandemic. Similarly, the private-sector job openings
As inferred from their responses, survey respondents ex-
rate, as measured by the Job Openings and Labor Turn-
pected real rates to increase through the first half of 2024
over Survey, fell in May to its lowest level since March
and to remain above their expectations for the long-run
2021 but remained well above pre-pandemic levels. The
neutral levels for a few years.
unemployment rate edged down to 3.6 percent in June,
The manager then turned to money market develop- while the labor force participation rate and the employ-
ments and policy implementation. The overnight re- ment-to-population ratio were both unchanged. The
verse repurchase agreement (ON RRP) facility contin- unemployment rates for African Americans and Hispan-
ued to work as intended over the intermeeting period ics, however, both rose and were well above the national
and had been instrumental in providing an effective average. Average hourly earnings rose 4.4 percent over
floor under the federal funds rate and supporting other the 12 months ending in June, compared with a year-
money market rates; those rates remained stable over the earlier increase of 5.4 percent.
period. Following the suspension of the debt ceiling in
Consumer price inflation continued to show signs of
early June, the Treasury Department issued securities,
easing but remained elevated. Total PCE price inflation
notably Treasury bills, to replenish the Treasury General
was 3.8 percent over the 12 months ending in May, and
Account (TGA). The resulting greater availability of
core PCE price inflation, which excludes changes in en-
Treasury bills, which were priced at rates slightly above
ergy prices and many consumer food prices, was 4.6 per-
the current and expected ON RRP rates, induced a net
cent over the same period. The trimmed mean measure
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Page 4 Federal Open Market Committee

of 12-month PCE price inflation constructed by the hold, and some indicated that a rate cut is possible at
Federal Reserve Bank of Dallas was 4.6 percent in May. their next meeting.
In June, the 12-month change in the CPI was 3.0 per-
Staff Review of the Financial Situation
cent, while core CPI inflation was 4.8 percent over the
Over the intermeeting period, market participants inter-
same period. Measures of short-term inflation expecta-
preted domestic economic data releases as indicating
tions had moved down alongside actual inflation but re-
continued resilience of economic activity and some eas-
mained above pre-pandemic levels. In contrast,
ing of inflationary pressures, and they viewed monetary
measures of medium- to longer-term inflation expecta-
policy communications as pointing to somewhat more
tions were in the range seen in the decade before the
restrictive policy than expected. The market-implied
pandemic.
path for the federal funds rate rose modestly, and nom-
Available indicators suggested that real GDP rose in the inal Treasury yields increased somewhat at shorter ma-
second quarter at a pace similar to the one posted in the turities. Meanwhile, broad equity prices increased, and
first quarter. However, private domestic final pur- spreads on investment- and speculative-grade corporate
chases—which includes PCE, residential investment, bonds narrowed moderately. Financing conditions con-
and business fixed investment and which often provides tinued to be generally restrictive, and borrowing costs
a better signal of underlying economic momentum than remained elevated.
does GDP—appeared to have decelerated in the second
Over the intermeeting period, the market-implied path
quarter. Manufacturing output rose in the second quar-
for the federal funds rate rose modestly, while the timing
ter, supported by a robust increase in motor vehicle pro-
of the path’s slightly higher peak moved a little later, to
duction.
just after the November meeting. Beyond this year, the
After falling sharply in April, real exports of goods policy rate path implied by overnight index swap (OIS)
picked up in May, led by higher exports of industrial sup- quotes ended the period modestly higher. Yields on
plies and automotive products. Real goods imports fell, Treasury securities increased modestly at shorter matur-
as lower imports of consumer goods and industrial sup- ities but only a bit at longer maturities. Measures of in-
plies more than offset higher imports of capital goods. flation compensation rose only slightly for near-term
The nominal U.S. international trade deficit narrowed, as and longer maturities. Measures of uncertainty about
a sharp decline in nominal imports of goods and services the path of the policy rate derived from interest rate op-
outpaced a decline in exports. The available data sug- tions remained very elevated by historical standards.
gested that net exports subtracted from U.S. GDP
Broad stock price indexes increased and spreads on in-
growth in the second quarter.
vestment- and speculative-grade corporate bonds nar-
Indicators of economic activity, such as purchasing man- rowed moderately over the intermeeting period. The
agers indexes (PMIs), pointed to a step-down in the pace VIX—the one-month option-implied volatility on the
of foreign growth in the second quarter, reflecting fading S&P 500—edged down and ended the period near the
of the impetus from China’s reopening, continued ane- 25th percentile of its historical distribution. Bank equity
mic growth in Europe, some weakening of activity in prices increased and outperformed the S&P 500 mod-
Canada and Mexico, as well as weak external demand estly. Stock prices for the largest banks fully recovered
and the slump in the high-tech industry weighing on from their declines in the immediate wake of the failure
many Asian economies. Incoming data also indicated of Silicon Valley Bank, while those for regional banks
that global manufacturing activity remained weak during remained below the levels seen in early March.
the intermeeting period.
Short-term interest rates in the AFEs increased mod-
Foreign headline inflation continued to fall, reflecting, in estly, on net, over the intermeeting period as foreign cen-
part, the pass-through of previous declines in commod- tral banks continued to raise policy rates and signal the
ity prices to retail energy and food prices. Core inflation potential for further tightening. Increases in yields were
edged down in many countries but generally remained tempered, however, by downside surprises to both infla-
high. In this context, and amid tight labor market con- tion and PMIs from some economies. Risk sentiment in
ditions, many AFE central banks raised policy rates and foreign markets improved somewhat, with most foreign
underscored the need to raise rates further, or hold them equity indexes increasing and foreign corporate and
at sufficiently restrictive levels, to bring inflation in their emerging market sovereign bond spreads narrowing.
countries back to their targets. In contrast, central banks The staff’s trade-weighted broad dollar index declined
of emerging market economies largely remained on moderately, with the largest moves following releases of
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Minutes of the Meeting of July 25–26, 2023 Page 5

weaker-than-expected U.S. labor market data and lower- May. Commercial and industrial (C&I) loan balances
than-expected U.S. inflation data. contracted modestly in the second quarter, and commer-
cial real estate (CRE) loan growth on banks’ books con-
Conditions in domestic short-term funding markets re-
tinued to moderate.
mained generally stable over the intermeeting period.
Spreads in unsecured markets narrowed modestly amid In the July Senior Loan Officer Opinion Survey on Bank
slight increases in OIS rates. Following the suspension Lending Practices (SLOOS), banks reported having
of the debt limit, the Treasury Department partly replen- tightened standards and terms on C&I loans to firms of
ished the TGA via a large net increase in bill issuance. all sizes in the second quarter. The most cited reason
Auctions of Treasury bills were met with robust demand, for tightening C&I standards and terms continued to be
as shorter-term bill yields increased relative to other concerns about the economic outlook. Banks also re-
money market rates. Money market funds increased ported expecting to tighten C&I standards further over
their holdings of Treasury bills and reduced their invest- the remainder of the year.
ments with the ON RRP facility. ON RRP take-up de-
The July SLOOS also indicated that standards across all
clined notably—about $390 billion—over the intermeet-
CRE loan categories tightened further in the second
ing period, reflecting more attractive rates on some al-
quarter and that banks expected to tighten CRE stand-
ternatives to investing in the ON RRP facility. Despite
ards further over the second half of the year. Meanwhile,
reduced ON RRP take-up, money funds maintained rel-
CMBS issuance picked up a bit in May and then ticked
atively high asset allocations in overnight repurchase
down in June after recording low volumes earlier in the
agreement investments amid still-elevated uncertainty
year.
about the future path of policy.
Credit in the residential mortgage market remained
In domestic credit markets, borrowing costs for busi-
broadly available for high-credit-score borrowers who
nesses, households, and municipalities were little
met standard conforming loan criteria. Only modest
changed over the intermeeting period and remained ele-
net percentages of banks in the July SLOOS reported
vated by historical standards. Yields on agency commer-
tightening standards for mortgage loans eligible to be
cial mortgage-backed securities (CMBS) were little
purchased by government-sponsored enterprises, while
changed.
a moderate net percentage of banks reported expecting
The banking sector’s ability to fund loans to businesses to tighten lending standards further for these loans over
and consumers was generally stable during the inter- the second half of the year. Meanwhile, the availability
meeting period. Core deposit volumes at both large and of mortgage credit remained tighter for households with
other domestic banks held steady at the levels that they lower credit scores, at levels close to those prevailing be-
reached in early May, after having declined sharply in fore the pandemic. Banks reported in the SLOOS that
March and April amid the banking-sector turmoil. they had tightened standards for certain categories of
Banks continued to attract inflows of large time depos- residential real estate loans to be held on their balance
its, reflecting higher interest rates offered on new certif- sheets, such as jumbo loans and home equity lines of
icates of deposit. Meanwhile, wholesale borrowing— credit. In addition, banks reported expecting to tighten
which primarily consists of advances from Federal standards for jumbo loans during the remainder of 2023.
Home Loan Banks, loans from the Bank Term Funding
Conditions remained generally accommodative in con-
Program, and other credit extended by the Federal Re-
sumer credit markets, with credit available for most bor-
serve—had fallen since May by domestic banks of all
rowers. Credit card balances increased in the second
sizes, partially reversing the surge at the onset of the
quarter, though at a somewhat slower pace than in pre-
bank turmoil in March.
vious months. In the July SLOOS, banks reported ex-
Credit availability for businesses appeared to tighten pecting to continue tightening lending standards for
somewhat in recent months. Credit from capital mar- credit card loans.
kets was somewhat subdued but overall remained acces-
Overall, the credit quality of most businesses and house-
sible for larger corporations. Issuance of leveraged loans
holds remained solid. While there were signs of deteri-
remained limited, reflecting low levels of leveraged buy-
oration in credit quality in some sectors, such as the of-
out and merger and acquisition activity as well as weak
fice segment of CRE, delinquency rates generally re-
investor demand. In the municipal bond market, gross
mained near their pre-pandemic lows. The credit quality
issuance was solid in June, as both refundings and new
capital issuance picked up from a somewhat subdued
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Page 6 Federal Open Market Committee

of C&I and CRE loans on banks’ balance sheets re- recession toward the end of the year. However, the staff
mained sound as of the end of the first quarter of 2023. continued to expect that real GDP growth in 2024 and
However, in the July SLOOS, banks frequently cited 2025 would run below their estimate of potential output
concerns about the credit quality of both CRE and other growth, leading to a small increase in the unemployment
loans as reasons for expecting to tighten their lending rate relative to its current level.
standards over the remainder of the year. Aggregate de-
The staff continued to project that total and core PCE
linquency rates on pools of commercial mortgages back-
price inflation would move lower in coming years. Much
ing CMBS increased in May and June.
of the step-down in core inflation was expected to occur
The staff provided an update on its assessment of the over the second half of 2023, with forward-looking indi-
stability of the financial system and, on balance, charac- cators pointing to a slowing in the rate of increase of
terized the financial vulnerabilities of the U.S. financial housing services prices and with core nonhousing ser-
system as notable. The staff judged that asset valuation vices prices and core goods prices expected to decelerate
pressures remained notable. In particular, measures of over the remainder of 2023. Inflation was anticipated to
valuations in both residential and commercial property ease further over 2024 as demand–supply imbalances
markets remained high relative to fundamentals. House continued to resolve; by 2025, total PCE price inflation
prices, while having cooled earlier this year, started to was expected to be 2.2 percent, and core inflation was
rise again, and price-to-rent ratios remained at elevated expected to be 2.3 percent.
levels and near those seen in the mid-2000s. Although
The staff continued to judge that the risks to the baseline
commercial property prices moved down, developments
projection for real activity were tilted to the downside.
in the CRE sector following the pandemic may have pro-
Risks to the staff’s baseline inflation forecast were seen
duced a permanent shift away from traditional working
as skewed to the upside, given the possibility that infla-
patterns. If so, fundamentals in the sector could decline
tion dynamics would prove to be more persistent than
notably and contribute to a deterioration in credit qual-
expected or that further adverse shocks to supply condi-
ity.
tions might occur. Moreover, the additional monetary
The staff assessed that vulnerabilities associated with policy tightening that would be necessitated by higher or
household and nonfinancial business leverage remained more persistent inflation represented a downside risk to
moderate overall. Aggregate household debt growth re- the projection for real activity.
mained in line with income growth. While nonfinancial
Participants’ Views on Current Conditions and the
businesses remained highly leveraged and thus vulnera-
Economic Outlook
ble to shocks, firms’ debt growth has been relatively sub-
In their discussion of current economic conditions, par-
dued recently, and their ability to service that debt has
ticipants noted that economic activity had been expand-
been quite high, even among lower-rated firms. Lever-
ing at a moderate pace. Job gains had been robust in
age in the financial sector was characterized as notable.
recent months, and the unemployment rate remained
In the banking sector, regulatory risk-based capital ratios
low. Inflation remained elevated. Participants agreed
showed the system remained well capitalized. However,
that the U.S. banking system was sound and resilient.
while the overall banking system retained ample loss-
They commented that tighter credit conditions for
bearing capacity, some banks experienced sizable de-
households and businesses were likely to weigh on eco-
clines in the fair value of their assets as a consequence of
nomic activity, hiring, and inflation. However, partici-
rising interest rates. Vulnerabilities associated with
pants agreed that the extent of these effects remained
funding risks were also characterized as notable. Al-
uncertain. Against this background, the Committee re-
though a small number of banks saw notable outflows
mained highly attentive to inflation risks.
of deposits late in the first quarter and early in the second
quarter, deposit flows later stabilized. In assessing the economic outlook, participants noted
that real GDP growth had continued to exhibit resilience
Staff Economic Outlook
in the first half of the year and that the economy had
The economic forecast prepared by the staff for the July
been showing considerable momentum. A gradual slow-
FOMC meeting was stronger than the June projection.
down in economic activity nevertheless appeared to be
Since the emergence of stress in the banking sector in
in progress, consistent with the restraint placed on de-
mid-March, indicators of spending and real activity had
mand by the cumulative tightening of monetary policy
come in stronger than anticipated; as a result, the staff
since early last year and the associated effects on finan-
no longer judged that the economy would enter a mild
_____________________________________________________________________________________________
Minutes of the Meeting of July 25–26, 2023 Page 7

cial conditions. Participants remarked on the uncer- judged that, over coming quarters, firms would reduce
tainty about the lags in the effects of monetary policy on the pace of their investment spending and hiring in re-
the economy and discussed the extent to which the ef- sponse to tight financial conditions and the slowing of
fects on the economy stemming from the tightening that economic activity.
the Committee had undertaken had already materialized.
Participants remarked that the labor market continued
Participants commented that monetary policy tightening
to be very tight but pointed to signs that demand and
appeared to be working broadly as intended and that a
supply were coming into better balance. They noted ev-
continued gradual slowing in real GDP growth would
idence that labor demand was easing—including de-
help reduce demand–supply imbalances in the economy.
clines in job openings, lower quits rates, more part-time
Participants assessed that the ongoing tightening of
work, slower growth in hours worked, higher unemploy-
credit conditions in the banking sector, as evidenced in
ment insurance claims, and more moderate rates of
the most recent surveys of banks, also would likely weigh
nominal wage growth. In addition, they remarked on
on economic activity in coming quarters. Participants
indications of increasing labor supply, including a fur-
noted the recent reduction in total and core inflation
ther rise in the prime-age participation rate to a post-
rates. However, they stressed that inflation remained
pandemic high. Participants also observed, however,
unacceptably high and that further evidence would be
that although growth in payrolls had slowed recently, it
required for them to be confident that inflation was
continued to exceed values consistent over time with an
clearly on a path toward the Committee’s 2 percent ob-
unchanged unemployment rate, and that nominal wages
jective. Participants continued to view a period of be-
were still rising at rates above levels assessed to be con-
low-trend growth in real GDP and some softening in la-
sistent with the sustained achievement of the Commit-
bor market conditions as needed to bring aggregate sup-
tee’s 2 percent inflation objective. Participants judged
ply and aggregate demand into better balance and reduce
that further progress toward a balancing of demand and
inflation pressures sufficiently to return inflation to
supply in the labor market was needed, and they ex-
2 percent over time.
pected that additional softening in labor market condi-
Participants noted that consumer spending had recently tions would take place over time.
exhibited considerable resilience, underpinned by, in ag-
Participants cited a number of tentative signs that infla-
gregate, strong household balance sheets, robust job and
tion pressures could be abating. These signs included
income gains, a low unemployment rate, and rising con-
some softening in core goods prices, lower online prices,
sumer confidence. Nevertheless, tight financial condi-
evidence that firms were raising prices by smaller
tions, primarily reflecting the cumulative effect of the
amounts than previously, slower increases in shelter
Committee’s shift to a restrictive policy stance, were ex-
prices, and recent declines in survey estimates of shorter-
pected to contribute to slower growth in consumption
term inflation expectations and of inflation uncertainty.
in the period ahead. Participants cited other factors that
Various participants discussed the continued stability of
were likely leading to, or appeared consistent with, a
longer-term inflation expectations at levels consistent
slowdown in consumption, including the declining stock
with 2 percent inflation over time and the role that the
of excess savings, softening labor market conditions, and
Committee’s policy tightening had played in delivering
increased price sensitivity on the part of customers.
this outcome. Nonetheless, several participants com-
Some participants observed that recent increases in
mented that significant disinflationary pressures had yet
home prices suggested that the housing sector’s re-
to become apparent in the prices of core services exclud-
sponse to monetary policy restraint may have peaked.
ing housing.
In their discussion of the business sector, participants
Participants observed that, notwithstanding recent fa-
cited various improvements in firms’ cost structures.
vorable developments, inflation remained well above the
These included better-functioning supply chains, lower
Committee’s 2 percent longer-term objective and that el-
input costs, and an increased ability to hire and retain
evated inflation was continuing to harm businesses and
workers. Participants also discussed conditions that
households—low-income families in particular. Partici-
could lead to higher economic activity—such as leaner
pants stressed that the Committee would need to see
inventories and reduced expectations of a sharp eco-
more data on inflation and further signs that aggregate
nomic slowdown—and factors that could lead to lower
demand and aggregate supply were moving into better
economic activity—such as continuing economic uncer-
balance to be confident that inflation pressures were
tainty, the vulnerabilities of the CRE market, and the on-
going weakness of manufacturing output. Participants
_____________________________________________________________________________________________
Page 8 Federal Open Market Committee

abating and that inflation was on course to return to economic activity, hiring, and inflation. However, the
2 percent over time. extent of these effects remained uncertain. Although in-
flation had moderated since the middle of last year, it
Participants generally noted a high degree of uncertainty
remained well above the Committee’s longer-run goal of
regarding the cumulative effects on the economy of past
2 percent, and participants remained resolute in their
monetary policy tightening. Participants cited upside
commitment to bring inflation down to the Committee’s
risks to inflation, including those associated with scenar-
2 percent objective. Amid these economic conditions,
ios in which recent supply chain improvements and fa-
almost all participants judged it appropriate to raise the
vorable commodity price trends did not continue or in
target range for the federal funds rate to 5¼ to 5½ per-
which aggregate demand failed to slow by an amount
cent at this meeting. Participants noted that this action
sufficient to restore price stability over time, possibly
would put the stance of monetary policy further into re-
leading to more persistent elevated inflation or an unan-
strictive territory, consistent with reducing demand–sup-
choring of inflation expectations. In discussing down-
ply imbalances in the economy and helping to restore
side risks to economic activity and inflation, participants
price stability. A couple of participants indicated that
considered the possibility that the cumulative tightening
they favored leaving the target range for the federal
of monetary policy could lead to a sharper slowdown in
funds rate unchanged or that they could have supported
the economy than expected, as well as the possibility that
such a proposal. They judged that maintaining the cur-
the effects of the tightening of bank credit conditions
rent degree of restrictiveness at this time would likely re-
could prove more substantial than anticipated.
sult in further progress toward the Committee’s goals
In their discussion of financial stability, participants ob- while allowing the Committee time to further evaluate
served that the banking system was sound and resilient this progress. All participants agreed that it was appro-
and that banking stress had calmed in recent months. priate to continue the process of reducing the Federal
Participants also noted that the most recent stress-test Reserve’s securities holdings, as described in its previ-
results indicated that large banks appeared to be well po- ously announced Plans for Reducing the Size of the Fed-
sitioned to withstand a severe recession. Various partic- eral Reserve’s Balance Sheet. A number of participants
ipants commented on risks that could affect some banks, noted that balance sheet runoff need not end when the
including unrealized losses on assets resulting from ris- Committee eventually begins to reduce the target range
ing interest rates, significant reliance on uninsured de- for the federal funds rate.
posits, and increased funding costs. Participants also
In discussing the policy outlook, participants continued
commented on risks associated with a potential sharp
to judge that it was critical that the stance of monetary
decline in CRE valuations that could adversely affect
policy be sufficiently restrictive to return inflation to the
some banks and other financial institutions, such as in-
Committee’s 2 percent objective over time. They noted
surance companies, that are heavily exposed to CRE.
that uncertainty about the economic outlook remained
Several participants noted the susceptibility of some
elevated and agreed that policy decisions at future meet-
nonbank financial institutions, such as money market
ings should depend on the totality of the incoming in-
funds or digital asset entities, to runs or instability. In
formation and its implications for the economic outlook
addition, several participants emphasized the need for
and inflation as well as for the balance of risks. Partici-
banks to establish readiness to use Federal Reserve li-
pants expected that the data arriving in coming months
quidity facilities and for the Federal Reserve to ensure its
would help clarify the extent to which the disinflation
own readiness to provide liquidity during periods of
process was continuing and product and labor markets
stress.
were reaching a better balance between demand and sup-
In their consideration of appropriate monetary policy ac- ply. This information would be valuable in determining
tions at this meeting, participants concurred that eco- the extent of additional policy firming that may be ap-
nomic activity had been expanding at a moderate pace. propriate to return inflation to 2 percent over time. Par-
The labor market remained very tight, with robust job ticipants also emphasized the importance of communi-
gains in recent months and the unemployment rate still cating as clearly as possible about the Committee’s data-
low, but there were continuing signs that supply and de- dependent approach to policy and its firm commitment
mand in the labor market were coming into better bal- to bring inflation down to its 2 percent objective.
ance. Participants also noted that tighter credit condi-
Participants discussed several risk-management consid-
tions facing households and businesses were a source of
erations that could bear on future policy decisions. With
headwinds for the economy and would likely weigh on
inflation still well above the Committee’s longer-run goal
_____________________________________________________________________________________________
Minutes of the Meeting of July 25–26, 2023 Page 9

and the labor market remaining tight, most participants Members agreed that, in assessing the appropriate stance
continued to see significant upside risks to inflation, of monetary policy, they would continue to monitor the
which could require further tightening of monetary pol- implications of incoming information for the economic
icy. Some participants commented that even though outlook. They would be prepared to adjust the stance of
economic activity had been resilient and the labor mar- monetary policy as appropriate if risks emerge that could
ket had remained strong, there continued to be down- impede the attainment of the Committee’s goals. Mem-
side risks to economic activity and upside risks to the bers also agreed that their assessments will take into ac-
unemployment rate; these included the possibility that count a wide range of information, including readings on
the macroeconomic effects of the tightening in financial labor market conditions, inflation pressures and inflation
conditions since the beginning of last year could prove expectations, and financial and international develop-
more substantial than anticipated. A number of partici- ments.
pants judged that, with the stance of monetary policy in
At the conclusion of the discussion, the Committee
restrictive territory, risks to the achievement of the Com-
voted to direct the Federal Reserve Bank of New York,
mittee’s goals had become more two sided, and it was
until instructed otherwise, to execute transactions in the
important that the Committee’s decisions balance the
System Open Market Account in accordance with the
risk of an inadvertent overtightening of policy against
following domestic policy directive, for release at
the cost of an insufficient tightening.
2:00 p.m.:
Committee Policy Actions
“Effective July 27, 2023, the Federal Open Mar-
In their discussion of monetary policy for this meeting,
ket Committee directs the Desk to:
members agreed that economic activity had been ex-
panding at a moderate pace. They also concurred that • Undertake open market operations as nec-
job gains had been robust in recent months, and the un- essary to maintain the federal funds rate in
employment rate had remained low. Inflation had re- a target range of 5¼ to 5½ percent.
mained elevated.
• Conduct standing overnight repurchase
Members concurred that the U.S. banking system was agreement operations with a minimum bid
sound and resilient. They also agreed that tighter credit rate of 5.5 percent and with an aggregate
conditions for households and businesses were likely to operation limit of $500 billion.
weigh on economic activity, hiring, and inflation but that
the extent of these effects was uncertain. Members also • Conduct standing overnight reverse repur-
concurred that they remained highly attentive to infla- chase agreement operations at an offering
tion risks. rate of 5.3 percent and with a per-counter-
party limit of $160 billion per day.
In support of the Committee’s objectives to achieve
maximum employment and inflation at the rate of 2 per- • Roll over at auction the amount of principal
cent over the longer run, members agreed to raise the payments from the Federal Reserve’s hold-
target range for the federal funds rate to 5¼ to 5½ per- ings of Treasury securities maturing in each
cent. They also agreed that they would continue to as- calendar month that exceeds a cap of
sess additional information and its implications for mon- $60 billion per month. Redeem Treasury
etary policy. In determining the extent of additional pol- coupon securities up to this monthly cap
icy firming that may be appropriate to return inflation to and Treasury bills to the extent that coupon
2 percent over time, members concurred that they will principal payments are less than the
take into account the cumulative tightening of monetary monthly cap.
policy, the lags with which monetary policy affects eco- • Reinvest into agency mortgage-backed se-
nomic activity and inflation, and economic and financial curities (MBS) the amount of principal pay-
developments. In addition, members agreed to continue ments from the Federal Reserve’s holdings
to reduce the Federal Reserve’s holdings of Treasury se- of agency debt and agency MBS received in
curities and agency debt and agency mortgage-backed each calendar month that exceeds a cap of
securities, as described in its previously announced $35 billion per month.
plans. All members affirmed that they are strongly com-
mitted to returning inflation to their 2 percent objective. • Allow modest deviations from stated
amounts for reinvestments, if needed for
operational reasons.
_____________________________________________________________________________________________
Page 10 Federal Open Market Committee

• Engage in dollar roll and coupon swap the implications of incoming information for
transactions as necessary to facilitate settle- the economic outlook. The Committee would
ment of the Federal Reserve’s agency MBS be prepared to adjust the stance of monetary
transactions.” policy as appropriate if risks emerge that could
impede the attainment of the Committee’s
The vote also encompassed approval of the statement
goals. The Committee’s assessments will take
below for release at 2:00 p.m.:
into account a wide range of information, in-
“Recent indicators suggest that economic activ- cluding readings on labor market conditions, in-
ity has been expanding at a moderate pace. Job flation pressures and inflation expectations, and
gains have been robust in recent months, and financial and international developments.”
the unemployment rate has remained low. In-
Voting for this action: Jerome H. Powell, John C.
flation remains elevated.
Williams, Michael S. Barr, Michelle W. Bowman, Lisa D.
The U.S. banking system is sound and resilient. Cook, Austan D. Goolsbee, Patrick Harker, Philip N.
Tighter credit conditions for households and Jefferson, Neel Kashkari, Lorie K. Logan, and
businesses are likely to weigh on economic ac- Christopher J. Waller.
tivity, hiring, and inflation. The extent of these
Voting against this action: None.
effects remains uncertain. The Committee re-
mains highly attentive to inflation risks. To support the Committee’s decision to raise the target
range for the federal funds rate, the Board of Governors
The Committee seeks to achieve maximum em-
of the Federal Reserve System voted unanimously to
ployment and inflation at the rate of 2 percent
raise the interest rate paid on reserve balances to 5.4 per-
over the longer run. In support of these goals,
cent, effective July 27, 2023. The Board of Governors
the Committee decided to raise the target range
of the Federal Reserve System voted unanimously to ap-
for the federal funds rate to 5¼ to 5½ percent.
prove a ¼ percentage point increase in the primary
The Committee will continue to assess addi-
credit rate to 5.5 percent, effective July 27, 2023. 6
tional information and its implications for mon-
etary policy. In determining the extent of addi- It was agreed that the next meeting of the Committee
tional policy firming that may be appropriate to would be held on Tuesday–Wednesday, September 19–
return inflation to 2 percent over time, the 20, 2023. The meeting adjourned at 10:05 a.m. on
Committee will take into account the cumula- July 26, 2023.
tive tightening of monetary policy, the lags with Notation Vote
which monetary policy affects economic activity By notation vote completed on July 3, 2023, the Com-
and inflation, and economic and financial devel- mittee unanimously approved the minutes of the Com-
opments. In addition, the Committee will con- mittee meeting held on June 13–14, 2023.
tinue reducing its holdings of Treasury securi-
ties and agency debt and agency mortgage-
backed securities, as described in its previously
announced plans. The Committee is strongly
committed to returning inflation to its 2 percent _______________________
objective. Joshua Gallin
Secretary
In assessing the appropriate stance of monetary
policy, the Committee will continue to monitor

6 In taking this action, the Board approved requests to estab- effective on the later of July 27, 2023, or the date such Reserve
lish that rate submitted by the Boards of Directors of the Fed- Banks inform the Secretary of the Board of such a request.
eral Reserve Banks of Boston, Philadelphia, Cleveland, Rich- (Secretary’s note: Subsequently, the Federal Reserve Banks of
mond, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, New York and Atlanta were informed of the Board’s approval
and San Francisco. The vote also encompassed approval by of their establishment of a primary credit rate of 5.5 percent,
the Board of Governors of the establishment of a 5.5 percent effective July 27, 2023.)
primary credit rate by the remaining Federal Reserve Banks,