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Fomc Minutes 20231101
Fomc Minutes 20231101
Page 1
1 The Federal Open Market Committee is referenced as the 3 Attended through the discussion of developments in finan-
“FOMC” and the “Committee” in these minutes; the Board cial markets and open market operations.
of Governors of the Federal Reserve System is referenced as 4 Attended through the discussion of the economic and fi-
Jon Faust, Senior Special Adviser to the Chair, Division Kenneth C. Montgomery, First Vice President, Federal
of Board Members, Board Reserve Bank of Boston
Ron Feldman, First Vice President, Federal Reserve Norman J. Morin, Deputy Associate Director, Division
Bank of Minneapolis of Research and Statistics, Board
Andrew Figura, Associate Director, Division of Michelle M. Neal, Head of Markets, Federal Reserve
Research and Statistics, Board Bank of New York
Glenn Follette, Associate Director, Division of Fernanda Nechio, Vice President, Federal Reserve
Research and Statistics, Board Bank of San Francisco
Jenn Gallagher, Assistant to the Board, Division of Matthias Paustian, Assistant Director, Division of
Board Members, Board Research and Statistics, Board
Michael S. Gibson, Director, Division of Supervision Argia Sbordone, Research Department Head, Federal
and Regulation, Board Reserve Bank of New York
Christine Graham,4 Special Adviser to the Board, Nitish Ranjan Sinha, Special Adviser to the Board,
Division of Board Members, Board Division of Board Members, Board
Joseph W. Gruber, Executive Vice President, Federal Ellis W. Tallman, Executive Vice President, Federal
Reserve Bank of Kansas City Reserve Bank of Cleveland
Michael Hendley,3 Associate Director, Federal Reserve Robert J. Tetlow, Senior Adviser, Division of Monetary
Bank of New York Affairs, Board
Valerie S. Hinojosa, Section Chief, Division of Skander Van den Heuvel, Associate Director, Division
Monetary Affairs, Board of Financial Stability, Board
Matteo Iacoviello, Senior Associate Director, Division Francisco Vazquez-Grande, Group Manager, Division
of International Finance, Board of Monetary Affairs, Board
Jane E. Ihrig, Special Adviser to the Board, Division of Clara Vega, Special Adviser to the Board, Division of
Board Members, Board Board Members, Board
Michael T. Kiley, Deputy Director, Division of David C. Wheelock, Senior Vice President, Federal
Financial Stability, Board Reserve Bank of St. Louis
Don H. Kim, Senior Adviser, Division of Monetary Randall A. Williams, Group Manager, Division of
Affairs, Board Monetary Affairs, Board
Christopher Kurz, Assistant Director and Chief, Jonathan Willis, Vice President, Federal Reserve Bank
Division of Research and Statistics, Board of Atlanta
Sylvain Leduc, Director of Research, Federal Reserve Paul R. Wood, Special Adviser to the Board, Division
Bank of San Francisco of Board Members, Board
Andreas Lehnert, Director, Division of Financial Egon Zakrajsek, Executive Vice President, Federal
Stability, Board Reserve Bank of Boston
Kurt F. Lewis, Special Adviser to the Chair, Division of Rebecca Zarutskie, Special Adviser to the Board,
Board Members, Board Division of Board Members, Board
Laura Lipscomb, Special Adviser to the Board, Andrei Zlate, Group Manager, Division of Monetary
Division of Board Members, Board Affairs, Board
Joshua Louria, Group Manager, Division of Monetary Developments in Financial Markets and Open
Affairs, Board Market Operations
The manager turned first to a review of developments in
Andrew Meldrum, Assistant Director, Division of
financial markets over the intermeeting period. Finan-
Monetary Affairs, Board
cial conditions continued to tighten, driven by higher
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Minutes of the Meeting of October 31–November 1, 2023 Page 3
yields on Treasury securities as well as by lower equity Treasury bill issuance and appeared to increase invest-
prices and a stronger dollar, which themselves partly re- ment in the private market for repurchase agreements
flected higher interest rates. Because earnings expecta- (repos) as well. Overall, the reduced usage of the
tions had held up well in recent months, the effect of ON RRP facility released more reserves than the reduc-
higher interest rates on equity prices likely took place tion in Federal Reserve assets and the increase in the
largely through valuations. Treasury General Account absorbed. On net, reserves
expanded over the period, and available indicators
The rise since July in yields on longer-dated nominal
pointed to them remaining abundant. Primary dealers
Treasury securities was mostly attributable to increases
indicated that reserves were projected to remain within
in real yields. There were small increases in inflation
their recent range for the next several quarters. The
compensation, but the levels of spot and forward rates
manager also noted that 23 banks, in addition to all pri-
were within historical ranges. The manager also noted
mary dealers, were already counterparties to the standing
that survey measures pointed to generally stable inflation
repo facility (SRF) and that several more were in the
expectations, especially at longer horizons, and that in-
onboarding process. Together, these banks held the vast
flation expectations remained well anchored.
majority of SRF-eligible securities in the banking system.
Staff analysis and responses from the Open Market The SRF, in addition to the discount window, may there-
Desk’s Survey of Primary Dealers and Survey of Market fore prove helpful for supplying liquidity to the banking
Participants suggested that the bulk of the increase since system should funding pressures emerge.
July in the 10-year nominal Treasury yield could be at-
By unanimous vote, the Committee ratified the Desk’s
tributed to a higher term premium, though higher policy
domestic transactions over the intermeeting period.
expectations at longer horizons could also have played a
There were no intervention operations in foreign curren-
role. The manager also noted that liquidity conditions in
cies for the System’s account during the intermeeting pe-
the Treasury market had not changed materially since
riod.
July, suggesting that Treasury market liquidity had not
been an important driver of the increase in yields. Staff Review of the Economic Situation
The data available at the time of the October 31–No-
The manager turned next to expectations for monetary
vember 1 meeting indicated that U.S. real gross domestic
policy. Both market pricing and responses to the Desk’s
product (GDP) had expanded at a strong pace in the
surveys implied that market participants expected that
third quarter. Labor market conditions remained tight,
the federal funds rate was at or near its peak and would
with continued strong job gains and a low unemploy-
be held there at least until the June 2024 FOMC meeting;
ment rate. Consumer price inflation remained elevated.
there was a roughly 30 percent probability of a 25 basis
point increase at either the December or January FOMC Labor demand and supply were slowly moving into bet-
meeting. Regarding balance sheet policy, the surveys ter alignment. Easing labor market imbalances were ap-
showed that respondents had pushed out the date they parent in the wage data, with the 12-month changes in
expected balance sheet runoff to stop, perhaps partly in average hourly earnings and the employment cost index
response to policymakers’ communications that balance each below their year-earlier levels. Although total non-
sheet runoff could continue even after the Committee farm payroll employment rose at a faster pace in Sep-
begins to reduce the target range for the federal funds tember than in previous months, the unemployment rate
rate. was unchanged at 3.8 percent; the labor force participa-
tion rate and the employment-to-population ratio were
The manager then turned to developments in money
also unchanged in September. The unemployment rate
markets and Desk operations. Balance sheet runoff con-
for African Americans rose, while the jobless rate for
tinued to proceed smoothly over the intermeeting period
Hispanics declined; both rates were higher than the na-
through reduced holdings of Treasury securities, agency
tional average.
debt, and agency mortgage-backed securities. The con-
tinued repayment by the Federal Deposit Insurance Cor- Consumer price inflation remained elevated but contin-
poration of discount window loans extended to banks ued to show signs of slowing. The price index for total
that were placed into receivership also contributed to re- personal consumption expenditures (PCE) increased
duced Federal Reserve assets. On the liabilities side of 3.4 percent over the 12 months ending in September,
the balance sheet, usage of the overnight reverse repur- while core PCE price inflation, which excludes changes
chase agreement (ON RRP) facility declined further, as in energy prices and many consumer food prices, was
money market mutual funds continued to absorb new 3.7 percent over the same period; both total and core
_____________________________________________________________________________________________
Page 4 Federal Open Market Committee
PCE price inflation were well below their year-earlier high. Meanwhile, equity prices decreased, and spreads
levels. The trimmed mean measure of 12-month PCE on investment- and speculative-grade corporate bonds
price inflation constructed by the Federal Reserve Bank widened. Financing conditions tightened further, and
of Dallas was 3.8 percent in September, also down from borrowing costs continued to rise.
the level posted a year ago. Survey measures of consum-
The market-implied path for the federal funds rate
ers’ short-run inflation expectations remained above
through 2024 declined slightly over the intermeeting pe-
their pre-pandemic levels. In contrast, survey measures
riod. Beyond 2024, the policy rate path implied by over-
of medium- to longer-term inflation expectations re-
night index swap quotes increased, likely reflecting, in
mained in the range seen in the decade before the pan-
part, higher term premiums. The rise in longer-term
demic.
nominal Treasury yields was driven by real yields. Short-
According to the advance estimate, real GDP posted a term inflation compensation fluctuated notably over the
strong gain in the third quarter. Private domestic final intermeeting period, largely following the changes in en-
purchases, which includes PCE and private fixed invest- ergy prices, but ended the period modestly lower.
ment and often provides a better signal than GDP of
Broad stock price indexes declined over the intermeeting
underlying economic momentum, posted a smaller but
period. Equity prices in interest rate–sensitive sectors,
still-solid increase.
such as real estate and utilities, underperformed the
Real exports and imports of goods and services grew at broader market. Stock prices of banks also declined
a robust pace in the third quarter after falling sharply in more than broader equity indexes. The one-month op-
the second quarter, reflecting broad-based strength tion-implied volatility on the S&P 500 index increased
across categories. Net exports made a slightly negative notably over the intermeeting period but remained be-
contribution to U.S. GDP growth in the third quarter, low the peaks observed in the first quarter of 2023.
while the nominal trade deficit narrowed somewhat.
Over the intermeeting period, foreign asset prices were
Foreign economic growth remained subdued in the third largely driven by spillovers from the rise in longer-term
quarter. Monetary policy restraint weighed on activity U.S. Treasury yields. Longer-term sovereign bond yields
abroad, especially in Europe, where euro-area GDP for advanced foreign economies rose, foreign equity
growth registered a small decline and the latest Euro- prices declined, foreign credit spreads generally widened,
pean Central Bank lending survey pointed to a contrac- and investors continued to withdraw from emerging
tion in credit from a year ago. Although GDP growth market economy funds. Stronger-than-expected U.S.
in China improved in the third quarter, supported by an data on economic activity and widening interest rate dif-
increase in industrial production, Chinese retail sales ferentials between the U.S. and the rest of the world con-
continued to be held back by low consumer confidence tributed to an increase in the staff’s broad dollar index.
and weakness in the residential property sector. The Bank of Japan increased the flexibility of its yield
curve control framework, which contributed to the rise
Inflation abroad remained elevated. While core inflation
in longer-term Japanese government bond yields. The
continued to ease amid slowing aggregate demand, en-
armed conflict between Israel and Hamas left a limited
ergy price inflation increased in many foreign econo-
net imprint on foreign financial markets over this period.
mies. With inflation still high, most major foreign cen-
tral banks, while keeping their policy rates unchanged, Conditions in short-term funding markets remained sta-
indicated their intentions to hold these rates at suffi- ble over the intermeeting period. Take-up in the
ciently restrictive levels to bring inflation back to target ON RRP facility continued to decline over the period.
rates. That decline primarily reflected money market funds re-
ducing their usage of the facility and increasing their
Staff Review of the Financial Situation
holdings of Treasury bills and private market repos in
Over the intermeeting period, longer-term Treasury
response to slightly more attractive rates on these alter-
yields rose notably, while shorter-term yields were little
native investments. Banks’ total deposit levels were
changed, and the market-implied path for the federal
roughly unchanged over the intermeeting period, as out-
funds rate through 2024 declined slightly. The increase
flows of core deposits were about offset by inflows of
in longer-term Treasury yields appeared to be mostly at-
large time deposits, which tend to be more expensive
tributable to higher term premiums, as stronger-than-ex-
sources of funding. Wholesale borrowing by large banks
pected economic data seemed to increase the uncertainty
increased over the intermeeting period.
regarding how long policy rates might need to remain
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Minutes of the Meeting of October 31–November 1, 2023 Page 5
In domestic credit markets, borrowing costs for busi- August, while auto credit continued to grow at a modest
nesses, households, and municipalities continued to rise pace. However, respondents to the October SLOOS re-
from already elevated levels over the intermeeting pe- ported tighter standards for all consumer loan categories
riod, primarily reflecting increases in longer-term Treas- in the third quarter. Meanwhile, outstanding student
ury yields. Interest rates on commercial and industrial loan balances declined significantly in August, driven by
(C&I) loans and small business loans increased, as did the cancellation of student loan debt for certain borrow-
rates on loans to households, including for 30-year con- ers.
forming residential mortgages, new auto loans, and
The credit quality of businesses, households, and munic-
credit cards. Rates also moved up on a broad array of
ipalities continued to show signs of deterioration in most
fixed-income securities, including residential and com-
sectors, as delinquency rates rose. The credit quality of
mercial mortgage-backed securities, municipal bonds,
nonfinancial firms borrowing in the corporate bond
and corporate bonds. Yields on corporate bonds rose
market remained sound overall, albeit with pockets of
more than Treasury yields, particularly for speculative-
deterioration. The credit quality of C&I and CRE loans
grade bonds.
on banks’ balance sheets remained generally stable
Credit continued to be generally available to businesses, through August. However, delinquency rates for non-
households, and municipalities. Total core loans on farm nonresidential CRE loans recently picked up. In
banks’ books continued to increase in the third quarter, the October SLOOS, banks frequently cited concerns
although at a slower pace than earlier in the year. How- about credit quality, including for both C&I and
ever, smaller firms were finding it harder to obtain credit, CRE loans, as reasons for tightening standards over the
with the share of small firms reporting in September that third quarter.
it was more difficult to obtain credit compared with
The staff provided an update on its assessment of the
three months earlier rising from an already elevated level.
stability of the financial system and, on balance, judged
Capital market financing continued to be available, al-
that the financial vulnerabilities of the U.S. financial sys-
though issuance in most markets was below typical lev-
tem were notable. The staff characterized asset valua-
els.
tion pressures as notable. In particular, the staff noted
In the October Senior Loan Officer Opinion Survey on that valuations in equities, housing, and CRE were high.
Bank Lending Practices (SLOOS), banks reported tight- The forward price-to-earnings ratio for S&P 500 firms
ening standards and terms on C&I loans to firms of all increased to the upper quartile of its historical distribu-
sizes in the third quarter. The most frequently cited rea- tion. House prices increased to the upper end of their
sons for tightening C&I standards and terms included historical range, relative to fundamentals, despite tight
concerns about the economic outlook, a less favorable credit conditions in the mortgage market. While CRE
or more uncertain economic outlook, and the effects of prices declined, valuations remained stretched, with cap-
potential legislative changes, supervisory actions, or italization rates remaining near historical lows. Funda-
changes in accounting standards. Banks also reported mentals in the office sector remained weak given the
that demand for C&I loans weakened in the third quar- shift toward telework in many industries, especially for
ter, with the most frequently cited reasons being de- central business districts and coastal cities. Delinquency
creased investment in plant or equipment and decreased rates on commercial mortgage-backed securities moved
inventory financing needs. Similarly, banks indicated up as office and retail loan performance deteriorated.
that commercial real estate (CRE) loan standards contin- Vulnerabilities associated with business and household
ued to tighten and demand weakened further in the third debt were characterized as moderate.
quarter.
Leverage in the financial sector was characterized as no-
Credit in the residential mortgage market remained easily table. In the banking sector, holdings of liquid assets
available for high-credit-score borrowers who met remained high, and regulatory risk-based capital ratios
standard conforming loan criteria. However, in the Oc- indicated ample loss-bearing capacity in the banking sys-
tober SLOOS, banks reported tighter standards and tem. However, the fair value of banks’ longer-term
weaker demand for almost all categories of residential fixed-rate assets, including loans, decreased in the third
real estate loans in the third quarter. quarter as longer-term interest rates rose. Hedge fund
leverage remained above historical averages, particularly
Consumer credit remained readily available for most
for the largest funds. Funding risks were also character-
borrowers, although there were signs of tightening
ized as notable. Reliance on uninsured deposits declined
standards. Credit card balances grew at a strong pace in
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Page 6 Federal Open Market Committee
in the aggregate but remained high for some banks, and Participants assessed that while labor market conditions
short-term nondeposit funding had increased. remained tight, they had eased since earlier in the year,
partly as a result of recent increases in labor supply. Par-
Staff Economic Outlook
ticipants judged that the current stance of monetary pol-
The economic forecast prepared by the staff for the Oc-
icy was restrictive and was putting downward pressure
tober–November meeting was similar to the September
on economic activity and inflation. In addition, they
projection. The staff expected fourth-quarter GDP
noted that financial conditions had tightened signifi-
growth to slow markedly from its third-quarter rate. All
cantly in recent months. Participants noted that inflation
told, however, average GDP growth over the second
had moderated over the past year but stressed that cur-
half of the year was projected to be a little faster than the
rent inflation remained unacceptably high and well
first half’s pace. The staff also expected output in the
above the Committee’s longer-run goal of 2 percent.
fourth quarter to be temporarily restrained by the auto-
They also stressed that further evidence would be re-
workers’ strike before being boosted in the first quarter
quired for them to be confident that inflation was clearly
as lost production begins to be made up. The size and
on a path to the Committee’s 2 percent objective. Par-
timing of these effects were highly uncertain, however.
ticipants continued to view a period of below-potential
With the lagged effects of monetary policy actions ex-
growth in real GDP and some further softening in labor
pected to restrain activity, real GDP was projected to rise
market conditions as likely to be needed to reduce infla-
more slowly than the staff’s estimate of potential over
tion pressures sufficiently to return inflation to 2 percent
the next two years before rising in line with potential in
over time.
2026. The unemployment rate was expected to be
roughly flat through 2026 as the effects of below-poten- In their discussion of the household sector, participants
tial output growth were offset by the effects of further observed that the incoming data on consumer spending
improvements in labor market functioning. had again surprised to the upside, likely supported by a
strong labor market and by generally solid household
Total PCE price inflation was expected to be close to
balance sheets. Nevertheless, some participants re-
3.0 percent by the end of this year, and core PCE infla-
marked that the finances of some households—espe-
tion was expected to be around 3.5 percent. Inflation
cially those in the low- and moderate-income catego-
was projected to move lower in coming years as demand
ries—were increasingly coming under pressure amid
and supply in product and labor markets moved into
high prices for food and other essentials as well as tight
better alignment; in 2026, total and core PCE price in-
credit conditions. Several participants added that delin-
flation rates were expected to be close to 2 percent.
quencies on auto loans and credit cards had risen for
The staff continued to view the uncertainty around the these households. Some participants commented that
baseline projection as elevated. Risks around the infla- their District contacts reported a somewhat weaker pic-
tion forecast were seen as skewed to the upside, given ture of consumer demand than indicated by the incom-
the possibility that inflation might prove to be more per- ing aggregate data. Several participants, however, noted
sistent than expected or that additional adverse shocks that repeated upside surprises in the aggregate spending
to supply conditions might occur. The risks to the fore- data could indicate that considerable momentum could
cast for real activity were viewed to be skewed to the be sustained. A couple of these participants commented
downside. Moreover, the additional monetary policy that the aggregate household sector may have more fi-
tightening that would be necessitated by higher or more nancial resources than previously thought, which could
persistent inflation, and the potential for a greater tight- help account for the strength in spending. A few partic-
ening of financial conditions, represented a downside ipants observed that activity in the housing sector had
risk to the projection for real activity. flattened out in recent months, likely reflecting the ef-
Participants’ Views on Current Conditions and the fects of further increases in mortgage rates from already
elevated levels.
Economic Outlook
Participants noted that real GDP had expanded at an un- Business fixed investment was flat in the third quarter,
expectedly strong pace in the third quarter, boosted by a and participants observed that conditions reported by
surge in consumer spending. Nevertheless, participants their business contacts varied across industries and Dis-
judged that aggregate demand and aggregate supply con- tricts. Some participants noted that businesses were
tinued to come into better balance, as a result of the cur- benefiting from an increased ability to hire and retain
rent restrictive stance of monetary policy and the con- workers, better-functioning supply chains, or reduced
tinued normalization of aggregate supply conditions. input cost pressures. A few participants commented
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Minutes of the Meeting of October 31–November 1, 2023 Page 7
that their business contacts had reported that cost in- recent months, as well as the continued gradual decline
creases could not be easily passed on to customers. Sev- in housing services inflation. However, participants also
eral participants commented that the apparent resolu- noted that there had been only limited progress in bring-
tion of the United Auto Workers strike would reduce ing down inflation in core services excluding housing.
business-sector uncertainty. Several participants noted Participants noted that longer-term inflation expecta-
that an increasing number of District businesses were re- tions remained well anchored. Participants observed
porting that higher interest rates were affecting their that, notwithstanding the moderation of inflation so far,
businesses or that firms were increasingly cutting or de- inflation remained well above the Committee’s 2 percent
laying their investment plans because of higher borrow- longer-run objective and that elevated inflation was con-
ing costs and tighter bank lending conditions. A few tinuing to harm businesses and households, particularly
participants noted that the tighter financial and credit low-income households. Participants stressed that they
conditions could be particularly challenging for small would need to see more data indicating that inflation
businesses. A few participants observed that higher in- pressures were abating to be more confident that infla-
terest rates were also affecting the agricultural sector, tion was on course to return to 2 percent over time.
with their contacts noting that high financing costs were
Participants noted that in recent months, financial con-
likely weighing on purchases of heavy agricultural equip-
ditions had tightened significantly because of a substan-
ment. Regarding the energy sector, a few participants
tial run-up in longer-term Treasury yields, among other
observed that energy markets had calmed after signifi-
factors. Higher Treasury yields contributed to an in-
cant volatility at the start of the current armed conflict
crease in 30-year mortgage rates to levels not seen in
between Israel and Hamas.
many years and led to higher corporate borrowing rates.
Participants observed that the labor market remained Many participants observed that a range of measures
tight. Payroll growth was unexpectedly strong in Sep- suggested that the rise in longer-term yields had been
tember, and the unemployment rate remained low. Nev- driven primarily or substantially by a rise in the term pre-
ertheless, participants assessed that labor supply and la- miums on Treasury securities. Participants generally
bor demand were continuing to come into better bal- viewed factors such as a fiscal outlook that suggested
ance. Measures of labor supply had moved up, with the greater future supply of Treasury securities than previ-
labor force participation rate for prime-age workers ris- ously thought and increased uncertainty about the eco-
ing this year, especially for women, and immigration also nomic and policy outlooks as likely having contributed
boosting labor supply. A few participants expressed to the rise in the term premiums. Some participants
concern that the recent pace of increases in labor supply noted that the rise in longer-term yields may also have
might not be sustainable in light of challenges regarding been driven by expectations for a higher path of the fed-
the availability of childcare and the uncertainty regarding eral funds rate in light of the surprising resilience of the
the extent to which immigration would continue to economy or a possible rise in the neutral policy rate. Par-
boost the growth of labor supply. Regarding labor de- ticipants highlighted that longer-term yields could be
mand, various measures appeared to indicate some eas- volatile and that the factors behind the recent increase,
ing, including a downward trend in job openings, a lower as well as their persistence, were uncertain. However,
quits rate, and reduced wage premiums offered to job they also noted that, whatever the source of the rise in
switchers. Consistent with the gradual rebalancing of la- longer-term yields, persistent changes in financial condi-
bor market conditions, participants commented that the tions could have implications for the path of monetary
pace of nominal wage increases had continued to mod- policy and that it would therefore be important to con-
erate. A few participants noted, however, that nominal tinue to monitor market developments closely.
wages were still rising at rates above levels generally as-
Participants generally noted a high degree of uncertainty
sessed to be consistent with the sustained achievement
surrounding the economic outlook. As upside risks to
of the Committee’s 2 percent inflation objective, given
economic activity, participants noted that the factors be-
current estimates of trend productivity growth.
hind the resilience in spending could persist longer than
Participants observed that inflation had continued to expected. As downside risks, participants cited the pos-
moderate since the middle of last year. Both the 6- and sibility that the effects on households and businesses of
12-month change measures of core PCE price inflation the cumulative policy tightening and tighter financial
had come down somewhat in recent months, despite a conditions could be larger than expected, disruptions
less favorable monthly reading in September. Partici- from a potential government shutdown, and the possi-
pants pointed to the softening of core goods prices in bility that the resumption of student loan repayments
_____________________________________________________________________________________________
Page 8 Federal Open Market Committee
could weigh on household spending by more than was or other factors. Amid these economic conditions, all
expected. As upside risks to inflation, participants cited participants judged it appropriate to maintain the target
the possibility that progress on disinflation stalls or in- range for the federal funds rate at 5¼ to 5½ percent at
flation reaccelerates because of continued momentum in this meeting. Participants judged that maintaining this
economic activity. A potential for a broadening of the restrictive stance of policy at this meeting would support
armed conflict in the Middle East was seen as presenting further progress toward the Committee’s goals while al-
upside risk to inflation through its potential effect on oil lowing more time to gather additional information to
prices as well as downside risk to economic activity. evaluate this progress. All participants agreed that it was
appropriate to continue the process of reducing the Fed-
In their discussion of financial stability, participants ob-
eral Reserve’s securities holdings, as described in the pre-
served that the banking system was sound and resilient
viously announced Plans for Reducing the Size of the
and that banking stresses had subsided. However, many
Federal Reserve’s Balance Sheet.
participants commented that unrealized losses on assets
resulting from the rise in longer-term interest rates, sig- In discussing the policy outlook, participants continued
nificant reliance by some banks on uninsured deposits, to judge that it was critical that the stance of monetary
and increased funding costs at banks warranted moni- policy be kept sufficiently restrictive to return inflation
toring. Many participants also commented on risks as- to the Committee’s 2 percent objective over time. All
sociated with a potential sharp decline in CRE valua- participants agreed that the Committee was in a position
tions, which could adversely affect some banks and to proceed carefully and that policy decisions at every
other financial institutions. Several participants noted meeting would continue to be based on the totality of
potential cyber risks and emphasized the importance of incoming information and its implications for the eco-
firms, particularly providers of critical infrastructure, be- nomic outlook as well as the balance of risks. Partici-
ing prepared to recover from such threats. A few par- pants noted that further tightening of monetary policy
ticipants also discussed the importance of monitoring would be appropriate if incoming information indicated
Treasury market functioning and potential vulnerabili- that progress toward the Committee’s inflation objective
ties posed by the amount of leverage being used by was insufficient. Participants expected that the data ar-
hedge funds in this market. In addition, several partici- riving in coming months would help clarify the extent to
pants emphasized the need for banks to establish readi- which the disinflation process was continuing, aggregate
ness to use Federal Reserve liquidity facilities and for the demand was moderating in the face of tighter financial
Federal Reserve to ensure its own readiness to provide and credit conditions, and labor markets were reaching
liquidity during periods of stress. a better balance between demand and supply. Partici-
pants noted the importance of continuing to communi-
In their consideration of appropriate monetary policy ac-
cate clearly about the Committee’s data-dependent ap-
tions at this meeting, participants noted that economic
proach and its firm commitment to bring inflation down
activity expanded at a strong pace in the third quarter
to 2 percent.
and had been resilient. While the labor market remained
tight, job gains had moderated, on balance, since earlier All participants judged that it would be appropriate for
in the year, and there were continuing signs that supply policy to remain at a restrictive stance for some time un-
and demand in the labor market were coming into better til inflation is clearly moving down sustainably toward
balance. While inflation had moderated since the middle the Committee’s objective. Participants also observed
of last year, it remained well above the Committee’s that the continuing process of reducing the size of the
longer-run goal of 2 percent, and participants remained Federal Reserve’s balance sheet was an important part of
resolute in their commitment to bring inflation down to the overall approach to achieving their macroeconomic
the Committee’s 2 percent objective. Participants also objectives. A few participants noted that the process of
noted that tighter financial and credit conditions facing balance sheet runoff could continue for some time, even
households and businesses would likely weigh on eco- after the Committee begins to reduce the target range
nomic activity, hiring, and inflation, although the extent for the federal funds rate. Several participants com-
of these effects remained uncertain. Participants com- mented on the recent decline in the use of the ON RRP
mented on the significant tightening in financial condi- facility, noting that the use of the facility had been re-
tions in recent months, driven by higher longer-term sponsive to market conditions.
yields, with many noting that it was uncertain whether
this tightening of financial conditions would persist and
to what extent it reflected expectations for tighter policy
_____________________________________________________________________________________________
Minutes of the Meeting of October 31–November 1, 2023 Page 9
Participants discussed several risk-management consid- continue to reduce the Federal Reserve’s holdings of
erations that could bear on future policy decisions. Par- Treasury securities and agency debt and mortgage-
ticipants generally judged that, with the stance of mone- backed securities, as described in its previously an-
tary policy in restrictive territory, risks to the achieve- nounced plans. All members affirmed that they are
ment of the Committee’s goals had become more two strongly committed to returning inflation to their 2 per-
sided. But with inflation still well above the Committee’s cent objective.
longer-run goal and the labor market remaining tight,
Members agreed that, in assessing the appropriate stance
most participants continued to see upside risks to infla-
of monetary policy, they would continue to monitor the
tion. These risks included the possibility that the imbal-
implications of incoming information for the economic
ance of aggregate demand and supply could persist
outlook. They would be prepared to adjust the stance of
longer than expected and slow the progress on inflation,
monetary policy as appropriate if risks emerge that could
geopolitical tensions and risks emanating from global oil
impede the attainment of the Committee’s goals. Mem-
markets, the effects of a tight housing market on shelter
bers also agreed that their assessments would take into
inflation, and the potential for more limited declines in
account a wide range of information, including readings
goods prices. Many participants commented that even
on labor market conditions, inflation pressures and in-
though economic activity had been resilient and the la-
flation expectations, and financial and international de-
bor market had continued to be strong, downside risks
velopments.
to economic activity remained. Such risks included po-
tentially larger-than-expected effects of the tightening in At the conclusion of the discussion, the Committee
financial and credit conditions on aggregate demand and voted to direct the Federal Reserve Bank of New York,
on bank, business, and household balance sheets; con- until instructed otherwise, to execute transactions in the
tinued weakness in the CRE sector; and potential disrup- System Open Market Account in accordance with the
tions to global oil markets. following domestic policy directive, for release at
2:00 p.m.:
Committee Policy Actions
In their discussion of monetary policy for this meeting, “Effective November 2, 2023, the Federal
members agreed that economic activity had expanded at Open Market Committee directs the Desk to:
a strong pace in the third quarter, job gains had moder-
• Undertake open market operations as nec-
ated since earlier in the year but remained strong, and
essary to maintain the federal funds rate in
the unemployment rate had remained low. Inflation had
a target range of 5¼ to 5½ percent.
remained 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 finan-
rate of 5.5 percent and with an aggregate
cial and credit conditions for households and businesses
operation limit of $500 billion.
were likely to weigh on economic activity, hiring, and in-
flation but that the extent of these effects was uncertain. • Conduct standing overnight reverse repur-
Members agreed that they remained highly attentive to chase agreement operations at an offering
inflation risks. rate of 5.3 percent and with a per-counter-
In support of the Committee’s objectives to achieve party limit of $160 billion per day.
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 maintain payments from the Federal Reserve’s hold-
the target range for the federal funds rate at 5¼ to ings of Treasury securities maturing in each
5½ percent. They also agreed that they would continue calendar month that exceeds a cap of
to assess additional information and its implications for $60 billion per month. Redeem Treasury
monetary policy. In determining the extent of additional coupon securities up to this monthly cap
policy firming that may be appropriate to return inflation and Treasury bills to the extent that coupon
to 2 percent over time, members concurred that they principal payments are less than the
would take into account the cumulative tightening of monthly cap.
monetary policy, the lags with which monetary policy af-
fects economic activity and inflation, and economic and • Reinvest into agency mortgage-backed se-
financial developments. In addition, members agreed to curities (MBS) the amount of principal pay-
ments from the Federal Reserve’s holdings
_____________________________________________________________________________________________
Page 10 Federal Open Market Committee
of agency debt and agency MBS received in strongly committed to returning inflation to its
each calendar month that exceeds a cap of 2 percent objective.
$35 billion per month.
In assessing the appropriate stance of monetary
• Allow modest deviations from stated policy, the Committee will continue to monitor
amounts for reinvestments, if needed for the implications of incoming information for
operational reasons. the economic outlook. The Committee would
be prepared to adjust the stance of monetary
• Engage in dollar roll and coupon swap policy as appropriate if risks emerge that could
transactions as necessary to facilitate settle- impede the attainment of the Committee’s
ment of the Federal Reserve’s agency MBS goals. The Committee’s assessments will take
transactions.” into account a wide range of information, in-
The vote also encompassed approval of the statement cluding readings on labor market conditions, in-
below for release at 2:00 p.m.: flation pressures and inflation expectations, and
financial and international developments.”
“Recent indicators suggest that economic activ-
ity expanded at a strong pace in the third quar- Voting for this action: Jerome H. Powell, John C.
ter. Job gains have moderated since earlier in Williams, Michael S. Barr, Michelle W. Bowman, Lisa D.
the year but remain strong, and the unemploy- Cook, Austan D. Goolsbee, Patrick Harker, Philip N.
ment rate has remained low. Inflation remains Jefferson, Neel Kashkari, Adriana D. Kugler, Lorie K.
elevated. Logan, and Christopher J. Waller.
The U.S. banking system is sound and resilient. Voting against this action: None.
Tighter financial and credit conditions for Consistent with the Committee’s decision to leave the
households and businesses are likely to weigh target range for the federal funds rate unchanged, the
on economic activity, hiring, and inflation. The Board of Governors of the Federal Reserve System
extent of these effects remains uncertain. The voted unanimously to maintain the interest rate paid on
Committee remains highly attentive to inflation reserve balances at 5.4 percent, effective Novem-
risks. ber 2, 2023. The Board of Governors of the Federal Re-
The Committee seeks to achieve maximum em- serve System voted unanimously to approve the estab-
ployment and inflation at the rate of 2 percent lishment of the primary credit rate at the existing level of
over the longer run. In support of these goals, 5.5 percent, effective November 2, 2023.
the Committee decided to maintain the target It was agreed that the next meeting of the Committee
range for the federal funds rate at 5¼ to would be held on Tuesday–Wednesday, December 12–
5½ percent. The Committee will continue to 13, 2023. The meeting adjourned at 10:05 a.m. on No-
assess additional information and its implica- vember 1, 2023.
tions for monetary policy. In determining the
extent of additional policy firming that may be Notation Vote
appropriate to return inflation to 2 percent over By notation vote completed on October 10, 2023, the
time, the Committee will take into account the Committee unanimously approved the minutes of the
cumulative tightening of monetary policy, the Committee meeting held on September 19–20, 2023.
lags with which monetary policy affects eco-
nomic activity and inflation, and economic and
financial developments. In addition, the Com-
mittee will continue reducing its holdings of _______________________
Treasury securities and agency debt and agency Joshua Gallin
mortgage-backed securities, as described in its Secretary
previously announced plans. The Committee is