The Fed - Minutes of the Federal Open Market Committee March 20-21, 2018

A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, March 20, 2018, at 1:00 p.m. and continued on Wednesday, March 21, 2018, at 9:00 a.m.1

PRESENT:

Jerome H. Powell, Chairman William C. Dudley, Vice Chairman Thomas I. Barkin Raphael W. Bostic Lael Brainard Loretta J. Mester Randal K. Quarles John C. Williams

James Bullard, Charles L. Evans, Esther L. George, Eric Rosengren, and Michael Strine,2 Alternate Members of the Federal Open Market Committee

Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively

James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Thomas Laubach, Economist David W. Wilcox, Economist

David Altig, Kartik B. Athreya, Thomas A. Connors, Trevor A. Reeve, Ellis W. Tallman, and William Wascher, Associate Economists

Simon Potter, Manager, System Open Market Account

Lorie K. Logan, Deputy Manager, System Open Market Account

Ann E. Misback, Secretary, Office of the Secretary, Board of Governors

Matthew J. Eichner,3 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors

Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors

Antulio N. Bomfim, Special Adviser to the Chairman, Office of Board Members, Board of Governors

Joseph W. Gruber and John M. Roberts,2 Special Advisers to the Board, Office of Board Members, Board of Governors

Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors

Shaghil Ahmed, Brian M. Doyle, and Christopher J. Erceg, Senior Associate Directors, Division of International Finance, Board of Governors; Eric M. Engen and Diana Hancock, Senior Associate Directors, Division of Research and Statistics, Board of Governors

Ellen E. Meade, Stephen A. Meyer, Edward Nelson, and Robert J. Tetlow, Senior Advisers, Division of Monetary Affairs, Board of Governors

Stacey Tevlin, Associate Director, Division of Research and Statistics, Board of Governors

Glenn Follette and Karen M. Pence,2 Assistant Directors, Division of Research and Statistics, Board of Governors

Eric C. Engstrom, Adviser, Division of Monetary Affairs, and Adviser, Division of Research and Statistics, Board of Governors

Penelope A. Beattie,2 Assistant to the Secretary, Office of the Secretary, Board of Governors

Etienne Gagnon, Section Chief, Division of Monetary Affairs, Board of Governors

David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors

Kurt F. Lewis, Principal Economist, Division of Monetary Affairs, Board of Governors

Anna Orlik, Senior Economist, Division of Monetary Affairs, Board of Governors

Valerie Hinojosa, Information Manager, Division of Monetary Affairs, Board of Governors

Meredith Black, First Vice President, Federal Reserve Bank of Dallas

Michael Dotsey, Glenn D. Rudebusch, and Daniel G. Sullivan, Executive Vice Presidents, Federal Reserve Banks of Philadelphia, San Francisco, and Chicago, respectively

Marc Giannoni, Luke Woodward, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of Dallas, Kansas City, and Minneapolis, respectively

David Andolfatto, Jonathan P. McCarthy, Giovanni Olivei, and Jonathan L. Willis, Vice Presidents, Federal Reserve Banks of St. Louis, New York, Boston, and Kansas City, respectively

Developments in Financial Markets and Open Market Operations The deputy manager of the System Open Market Account (SOMA) provided a summary of developments in domestic and global financial markets over the intermeeting period; she also reported on open market operations and related issues. Financial markets experienced a notable bout of volatility early in the intermeeting period; volatility was particularly pronounced in equity markets. Market participants pointed to incoming economic data released in early February--particularly data on average hourly earnings--as raising concerns about the prospects for higher inflation and higher interest rates. These concerns reportedly contributed to a steep decline in equity prices and an associated rise in measures of volatility. Some reports suggested that the increase in volatility was amplified by the unwinding of trading positions based on various types of volatility trading strategies. Measures of equity market volatility declined over subsequent weeks but remained above levels that prevailed earlier in the year, and stock prices finished lower, on net, over the intermeeting period. Interest rates rose modestly over the period. Respondents to the Open Market Desk's surveys of primary dealers and market participants suggested that revisions in investors' views regarding the fiscal outlook were an important factor boosting yields and contributing to a slightly steeper expected trajectory of the federal funds rate. The deputy manager noted that a rapid and sizable increase in Treasury bill issuance over recent weeks had put upward pressure on money market yields over the period. Three-month Treasury bill yields moved up significantly and those increases passed through to rates on other short-term instruments such as three-month Eurodollar deposits and commercial paper. The spread of market rates on overnight repurchase agreements over the offering rate at the Federal Reserve's overnight reverse repurchase (ON RRP) facility widened, and take-up at the facility fell to quite low levels as a result. Rates on overnight federal funds and Eurodollar transactions edged higher relative to the interest rate on excess reserves. The Desk continued to execute the FOMC's balance sheet normalization plan initiated in October of last year.

Editor: Hasbi Maulana