Minutes of the Federal Open Market Committee July 27-28, …

1 _____. Page 1. Minutes of the Federal Open Market Committee July 27 28, 2021. A joint meeting of the Federal Open Market Committee Patricia Zobel, Deputy Manager, System Open Market and the Board of Governors of the Federal reserve Sys- Account tem was held by videoconference on Tuesday, July 27, 2021, at 9:00 and continued on Wednesday, July 28, Ann E. Misback, Secretary, Office of the Secretary, 2021, at 9:00 1 Board PRESENT: Matthew J. Eichner, 2 Director, Division of reserve Jerome H. Powell, Chair Bank Operations and Payment Systems, Board; Mi- John C. Williams, Vice Chair chael S. Gibson, Director, Division of Supervision Thomas I. Barkin and Regulation, Board; Andreas Lehnert, Director, Raphael W. Bostic Division of Financial Stability, Board Michelle W. Bowman Lael Brainard Jon Faust 3 and Joshua Gallin, Senior Special Advisers Richard H.

2 Clarida to the Chair, Division of Board Members, Board Mary C. Daly Charles L. Evans William F. Bassett, Antulio N. Bomfim, Burcu Duygan- Randal K. Quarles Bump, Jane E. Ihrig, Kurt F. Lewis, Chiara Scotti, Christopher J. Waller and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board James Bullard, Esther L. George, Naureen Hassan, Loretta J. Mester, and Eric Rosengren, Alternate Elizabeth Klee, Senior Associate Director, Division of Members of the Committee Financial Stability, Board; David E. Lebow, Michael G. Palumbo, and John J. Stevens, Senior Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Associate Directors, Division of Research and Presidents of the Federal reserve Banks of Statistics, Board; Min Wei, Senior Associate Philadelphia, Dallas, and Minneapolis, respectively Director, Division of Monetary Affairs, Board James A.

3 Clouse, Secretary Brett Berger,2 Senior Adviser, Division of International Matthew M. Luecke, Deputy Secretary Finance, Board; Ellen E. Meade and Edward Michelle A. Smith, Assistant Secretary Nelson, Senior Advisers, Division of Monetary Mark E. Van Der Weide, General Counsel Affairs, Board Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Christopher J. Gust, Associate Director, Division of Stacey Tevlin, Economist Monetary Affairs, Board; Paul R. Wood, Associate Beth Anne Wilson, Economist Director, Division of International Finance, Board Shaghil Ahmed, Kartik B. Athreya, Brian M. Doyle, Stephanie E. Curcuru2 and Andrea Raffo, Deputy Rochelle M. Edge, Beverly Hirtle, and William Associate Directors, Division of International Wascher, Associate Economists Finance, Board; Laura Lipscomb2 and Zeynep Senyuz, Deputy Associate Directors, Division of Lorie K.

4 Logan, Manager, System Open Market Monetary Affairs, Board; Norman J. Morin and Account Karen M. Pence, Deputy Associate Directors, Division of Research and Statistics, Board; Jeffrey 1 In these Minutes , the Federal Open Market Committee is 2 Attended through the discussion of asset purchases. referenced as the FOMC and the Committee ; the Board 3 Attended Wednesday's session only. of Governors of the Federal reserve System is referenced as the Board.. _____. Page 2 Federal Open Market Committee D. Walker,2 Deputy Associate Director, Division Chicago, St. Louis, Minneapolis, and New York, of reserve Bank Operations and Payment Systems, respectively Board Dina Marchioni,2 Thomas Mertens, Jon Willis, and Jennifer Gallagher, Special Assistant to the Board, Mark A. Wynne, Vice Presidents, Federal reserve Division of Board Members, Board Banks of New York, San Francisco, Atlanta, and Dallas, respectively Brian J.

5 Bonis and Etienne Gagnon,2 Assistant Direc- tors, Division of Monetary Affairs, Board Jeffrey Moore2 and Brett Rose,2 Assistant Vice Presidents, Federal reserve Bank of New York Alyssa G. Anderson2 and Andrew Meldrum,2 Section Chiefs, Division of Monetary Affairs, Board; Daniel Cooper, Senior Economist and policy Advisor, Penelope A. Beattie, 4 Section Chief, Office of the Federal reserve Bank of Boston Secretary, Board Ellen Correia-Golay2 and Brian Greene,2 Markets Mark A. Carlson, Senior Economic Project Manager, Officers, Federal reserve Bank of New York Division of Monetary Affairs, Board Developments in Financial Markets and Open David H. Small, Project Manager, Division of Market Operations Monetary Affairs, Board The manager turned first to a discussion of develop- ments in financial markets. Although there were notable Erin E. Ferris2 and Andrei Zlate, Principal Economists, moves in some asset prices over the intermeeting period, Division of Monetary Affairs, Board overall financial conditions ended the period little changed at historically accommodative levels.

6 Market Randall A. Williams, Lead Information Manager, participants seemed to interpret communications associ- Division of Monetary Affairs, Board ated with the June FOMC meeting as signaling a less ac- commodative path of monetary policy than had been an- Isabel Cair , Senior Economist, Division of Monetary ticipated. Implied rates on interest rate futures initially Affairs, Board rose following the meeting but subsequently retraced, and expectations regarding the path of the target Federal James M. Trevino,2 Senior Economic Modeler, funds rate over the next few years ended the period only Division of Monetary Affairs, Board modestly changed. Longer-term yields fell notably over the period, with the Isaiah C. Ahn, Senior Staff Assistant, Division of declines concentrated in far-forward rates. A significant Monetary Affairs, Board portion of these movements seemed to reflect changes in term premiums.

7 Market participants pointed to a Kathleen O. Paese, First Vice President, Federal number of factors as driving the movement in longer- reserve Bank of St. Louis term yields, most prominently including Federal reserve policy communications, investor positioning, and Michael Dotsey, Joseph W. Gruber, and Ellis W. changes in expectations regarding the course of the pan- Tallman, Executive Vice Presidents, Federal demic. reserve Banks of Philadelphia, Kansas City, and Cleveland, respectively With respect to the path of net asset purchases, respond- ents to the Open Market Desk's surveys of primary deal- Anne Baum, Spencer Krane, David C. Wheelock, Mark ers and Market participants expected communications Wright, and Nathaniel Wuerffel,2 Senior Vice on asset purchases to evolve gradually, with signals an- Presidents, Federal reserve Banks of New York, ticipated over coming months regarding both the Com- mittee's assessment of conditions constituting substan- 4 Attended through the discussion of economic developments and the outlook.

8 _____. Minutes of the Meeting of July 27 28, 2021 Page 3. tial further progress and details on tapering plans. Al- supported the proposed terms, although a few partici- most 60 percent of respondents anticipated the first re- pants raised questions, including whether the proposed duction in the pace of net asset purchases to come in aggregate cap of $500 billion was necessary, whether the January, though, on average, respondents placed some- collateral eligible in SRF operations should be limited to what more weight than in the June surveys on the possi- Treasury securities only, and how the setting of the min- bility of tapering beginning somewhat earlier. With re- imum bid rate in SRF operations would be expected to spect to the pace of tapering, respondents continued to evolve over time relative to the primary credit rate and anticipate that the Committee would take a gradual ap- the interest on reserve balances rate.

9 In general, partici- proach. While Market participants discussed the possi- pants viewed the SRF and FIMA Repo Facility as im- bility of an earlier or faster-than-proportional reduction portant new tools, serving in backstop roles, that would in the pace of net purchases of agency mortgage-backed support effective policy implementation and smooth securities (MBS), most survey respondents appeared to Market functioning. Participants anticipated that the expect the timing and pace of tapering of net purchases Committee would learn more about how these facilities of agency MBS and Treasury securities to be similar. operate over time and noted that it could adjust some parameters of the facilities on the basis of that experi- The manager turned next to a discussion of develop- ence. ments in operations and money markets over the period. Following the June meeting, overnight rates rose in line The Committee voted unanimously to approve the es- with the technical adjustment in administered rates and tablishment of the SRF.

10 All but one member of the were relatively stable for the remainder of the period. Committee voted to approve the FIMA Repo Facility. Overnight reverse repurchase agreement (ON RRP) Governor Bowman abstained from voting on the FIMA. take-up jumped by over $200 billion after the technical Repo Facility and noted that she would have preferred adjustment took effect, as government-sponsored enter- that the liquidity arrangements accessible to foreign of- prises moved balances held in unremunerated Federal ficial institutions be maintained only during periods of reserve deposit accounts into the higher-yielding ON extraordinary financial Market stress rather than through RRP investments. Government money Market funds a standing facility. also increased their participation in the facility amid a Standing Repurchase Agreement Facility Resolu- continued decline in Treasury bills outstanding and tion downward pressure on overnight rates.