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Minutes of the Federal Open Market Committee

July 28–29, 2020

A joint meeting of the Federal Open Market Committee Eric Belsky, 3 Director, Division of Consumer and
and the Board of Governors was held by videoconfer- Community Affairs, Board of Governors; Matthew
ence on Tuesday, July 28, 2020, at 10:00 a.m. and con- J. Eichner, 4 Director, Division of Reserve Bank
tinued on Wednesday, July 29, 2020, at 9:00 a.m. 1 Operations and Payment Systems, Board of
Governors; Michael S. Gibson, Director, Division
PRESENT: of Supervision and Regulation, Board of
Jerome H. Powell, Chair Governors; Andreas Lehnert, Director, Division of
John C. Williams, Vice Chair Financial Stability, Board of Governors
Michelle W. Bowman
Lael Brainard Daniel M. Covitz, Deputy Director, Division of
Richard H. Clarida Research and Statistics, Board of Governors; Brian
Patrick Harker M. Doyle, Deputy Director, Division of
Robert S. Kaplan International Finance, Board of Governors;
Neel Kashkari Rochelle M. Edge, Deputy Director, Division of
Loretta J. Mester Monetary Affairs, Board of Governors
Randal K. Quarles
Jon Faust, Senior Special Adviser to the Chair, Division
Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, of Board Members, Board of Governors
Charles L. Evans, and Michael Strine, Alternate
Members of the Federal Open Market Committee Joshua Gallin, Special Adviser to the Chair, Division of
Board Members, Board of Governors
James Bullard, Esther L. George, and Eric Rosengren,
Presidents of the Federal Reserve Banks of St. William F. Bassett, Antulio N. Bomfim, Wendy E.
Louis, Kansas City, and Boston, respectively Dunn, Ellen E. Meade, Chiara Scotti, and Ivan
Vidangos, Special Advisers to the Board, Division
James A. Clouse, Secretary of Board Members, Board of Governors
Matthew M. Luecke, Deputy Secretary
Michelle A. Smith, Assistant Secretary Linda Robertson, Assistant to the Board, Division of
Mark E. Van Der Weide, General Counsel Board Members, Board of Governors
Michael Held, Deputy General Counsel
Stacey Tevlin, Economist Eric M. Engen and David E. Lebow, Senior Associate
Beth Anne Wilson, Economist Directors, Division of Research and Statistics,
Board of Governors; Gretchen C. Weinbach,
Shaghil Ahmed, 2 Michael Dotsey, Beverly Hirtle, Senior Associate Director, Division of Monetary
Trevor A. Reeve, Ellis W. Tallman, William Affairs, Board of Governors
Wascher, and Mark L.J. Wright, Associate
Economists Edward Nelson and Robert J. Tetlow, Senior Advisers,
Division of Monetary Affairs, Board of Governors
Lorie K. Logan, Manager, System Open Market
Account David López-Salido,3 Associate Director, Division of
Monetary Affairs, Board of Governors; Paul R.
Ann E. Misback, Secretary, Office of the Secretary, Wood, Associate Director, Division of
Board of Governors International Finance, Board of Governors

1 The Federal Open Market Committee is referenced as the 3 Attended through the discussion of the review of monetary
“FOMC” and the “Committee” in these minutes. policy strategy, tools, and communication practices.
2 Attended through the discussion of economic developments 4 Attended through the discussion of developments in finan-

and the outlook, and all of Wednesday’s session. cial markets and open market operations.
Page 2 Federal Open Market Committee

Eric C. Engstrom and Christopher J. Gust,3 Deputy Michael Schetzel,6 Senior Vice President, Federal
Associate Directors, Division of Monetary Affairs, Reserve Bank of New York
Board of Governors; Luca Guerrieri, Deputy
Associate Director, Division of Financial Stability, Eugene Amromin, Kathryn B. Chen,6 Matthew
Board of Governors; Norman J. Morin, Deputy Nemeth,6 Joe Peek, and Patricia Zobel, Vice
Associate Director, Division of Research and Presidents, Federal Reserve Banks of Chicago,
Statistics, Board of Governors; Jeffrey D. Walker,4 New York, New York, Boston, and New York,
Deputy Associate Director, Division of Reserve respectively
Bank Operations and Payment Systems, Board of
Governors Robert Lerman,6 Assistant Vice President, Federal
Reserve Bank of New York
Brian J. Bonis and Etienne Gagnon,3 Assistant
Directors, Division of Monetary Affairs, Board of Karel Mertens, Senior Economic Policy Advisor, Fed-
Governors; Viktors Stebunovs, 5 Assistant Director, eral Reserve Bank of Dallas
Division of International Finance, Board of
Governors Mark Spiegel, Senior Policy Advisor, Federal Reserve
Bank of San Francisco
Brett Berger, 6 Adviser, Division of International
Finance, Board of Governors Review of Monetary Policy Strategy, Tools, and
Communication Practices
Penelope A. Beattie, 7 Section Chief, Office of the Participants continued their discussion related to the on-
Secretary, Board of Governors; Dana L. Burnett, going review of the Federal Reserve’s monetary policy
Section Chief, Division of Monetary Affairs, Board strategy, tools, and communication practices. At this
of Governors meeting, they discussed potential changes to the Com-
mittee’s Statement on Longer-Run Goals and Monetary
David H. Small, Project Manager, Division of Policy Strategy. Participants agreed that, in light of fun-
Monetary Affairs, Board of Governors damental changes in the economy over the past dec-
ade—including generally lower levels of interest rates
Michele Cavallo and Kurt F. Lewis, Principal and persistent disinflationary pressures in the United
Economists, Division of Monetary Affairs, Board States and abroad—and given what has been learned
of Governors during the monetary policy framework review, refining
the statement could be helpful in increasing the trans-
Marcelo Ochoa, Senior Economist, Division of parency and accountability of monetary policy. Such re-
Monetary Affairs, Board of Governors finements could also facilitate well-informed deci-
sionmaking by households and businesses, and, as a re-
Randall A. Williams, Senior Information Manager, sult, better position the Committee to meet its maxi-
Division of Monetary Affairs, Board of Governors mum-employment and price-stability objectives. Partic-
ipants noted that the Statement on Longer-Run Goals
James Narron, First Vice President, Federal Reserve and Monetary Policy Strategy serves as the foundation
Bank of Philadelphia for the Committee’s policy actions and that it would be
important to finalize all changes to the statement in the
David Altig, Kartik B. Athreya, Joseph W. Gruber, near future.
Daleep Singh, and Christopher J. Waller, Executive
Developments in Financial Markets and Open Mar-
Vice Presidents, Federal Reserve Banks of Atlanta,
ket Operations
Richmond, Kansas City, New York, and St. Louis,
The System Open Market Account (SOMA) manager
turned first to a review of U.S. financial market develop-
ments. Over the intermeeting period, overall financial
conditions eased slightly. Broad equity price indexes

5Attended the discussion of economic developments and the 6 Attended the discussion of developments in financial mar-
outlook. kets and open market operations.
7 Attended Tuesday’s session only.
Minutes of the Meeting of July 28–29, 2020 Page 3

were roughly flat even as concerns about the resurgence ket functioning indicators had returned to levels prevail-
in the coronavirus (COVID-19) in the United States ing before the pandemic, and, as a result, purchases were
grew. At the same time, Treasury yields and other sov- conducted at the minimum pace directed by the Com-
ereign yields declined, and the U.S. dollar weakened. mittee. Importantly, with conditions in MBS markets
Overall, volatility remained subdued relative to recent continuing to stabilize, primary mortgage rates fell to
periods. historically low levels over the intermeeting period.
While the S&P 500 index was little changed, the effect Conditions in short-term dollar funding markets were
of renewed outbreaks was evident in the differentiated also stable, with overnight rates close to the interest on
performance across S&P industry sectors. Virus-sensi- excess reserves (IOER) rate. In broader dollar funding
tive sectors and firms with weaker fundamentals under- markets, term unsecured rates and foreign exchange
performed over the period, as they had over the broader swap spreads were also steady. Federal Reserve repur-
pandemic episode. Airline and hotel share prices de- chase agreements (repos) outstanding fell from $185 bil-
clined sharply, and share prices of banks—which faced lion to zero over the intermeeting period. With the tim-
earnings pressures from large loan loss provisions and ing of the overnight operations now having shifted to
compressed net interest margins—continued to under- the afternoon when most trading activity in the repo
perform. As the SOMA manager highlighted, the S&P market is complete and with minimum bid rates above
500 index has been supported by its significant share of the IOER rate, repo operations had been effectively po-
technology firms, many of which have been relatively re- sitioned in a backstop role for the time being. As term
silient to virus containment measures. In contrast, U.S. dollar liquidity swaps matured, the amounts out-
smaller firms not well represented in the S&P 500 may standing fell to around $120 billion, less than a third of
be experiencing greater effects on their businesses due the peak reached in late May.
to the virus—a possibility consistent with the underper-
In light of improved conditions across these markets,
formance of the broader Russell 2000 index over the in-
the Federal Reserve’s balance sheet declined over the in-
termeeting period.
termeeting period from $7.2 trillion to $7.0 trillion. The
The market-implied path of the federal funds rate shifted decline was driven by the reductions in repo and U.S.
down modestly over the intermeeting period. The cor- dollar liquidity swaps outstanding. These reductions
responding path implied by responses to the Open Mar- more than offset ongoing purchases of Treasury securi-
ket Desk’s Survey of Primary Dealers and Survey of ties and agency MBS.
Market Participants also fell, as the probabilities placed
The manager discussed a proposal to extend the tempo-
on rate hikes next year and in 2022 declined. Market
rary U.S. dollar liquidity swap arrangements as well as
pricing suggested that the federal funds rate was ex-
the temporary FIMA (Foreign and International Mone-
pected to first rise above the current target range in 2024.
tary Authorities) Repo Facility through March of next
That timing was broadly consistent with survey respond-
year. Keeping these arrangements in place would help
ents’ expectations regarding the timing of the first in-
sustain recent improvements in global dollar funding
crease in the target range, although the range of survey
markets and support smooth functioning of the U.S.
responses was wide. The SOMA manager noted that
Treasury market. Under the proposal, provided that the
survey responses suggested that the dispersion in views
Committee had no objections, the Chair would approve
about the timing of a rate increase might be related to
the extension of the temporary liquidity swap lines fol-
differing views about the economic conditions that
lowing the meeting. The extensions of the swap and
would prevail when the FOMC first lifted the target
FIMA repo arrangements would be announced follow-
range, as survey respondents’ views about those condi-
ing this meeting.
tions were also dispersed.
By unanimous vote, the Committee voted to approve a
The SOMA manager reported that market functioning
resolution that extended through March 31, 2021, the
across a number of market segments remained stable at
expiration of a temporary repo facility for foreign and
significantly improved levels. In Treasury and agency
international monetary authorities (FIMA Repo Facil-
mortgage-backed securities (MBS) markets, many mar-
ity). 8

8 The approved FIMA Desk Resolution, which updates the

March 2020 resolution with a new expiration date, is available thorizations.htm.
with other Committee organizational documents at
Page 4 Federal Open Market Committee

Secretary’s note: The Chair subsequently pro- Total PCE price inflation was 0.5 percent over the
vided approval to the Desk, following the pro- 12 months ending in May, reflecting both weak aggre-
cedures in the Authorization for Foreign Cur- gate demand and a considerable drop in consumer en-
rency Operations, to extend the expiration of ergy prices. Core PCE price inflation, which excludes
the temporary U.S. dollar liquidity swap lines changes in consumer food and energy prices, was
through March 31, 2021. 1.0 percent over the same 12-month period. In contrast,
the trimmed mean measure of 12-month PCE price in-
By unanimous vote, the Committee ratified the Desk’s
flation constructed by the Federal Reserve Bank of Dal-
domestic transactions over the intermeeting period.
las was 2.0 percent in May. The consumer price index
There were no intervention operations in foreign curren-
(CPI) increased 0.6 percent over the 12 months ending
cies for the System’s account during the intermeeting pe-
in June, while core CPI inflation was 1.2 percent over
the same period. On a monthly basis, the available data
Staff Review of the Economic Situation indicated that consumer prices—as measured by the
The coronavirus outbreak and the measures undertaken PCE price index in May and the CPI in June—had
to contain its spread continued to have substantial ef- turned up after having fallen in March and April; this re-
fects on economic activity in the United States and bound was evident in many price categories that were
abroad. The information available at the time of the most affected by social-distancing measures. Recent
July 28–29 meeting suggested that U.S. economic activ- readings on survey-based measures of longer-run infla-
ity had picked up in May and June following sharp de- tion expectations were little changed on balance. The
clines in March and April. Measured on a quarterly basis, University of Michigan Surveys of Consumers measure
however, it appeared that real gross domestic product for the next 5 to 10 years was unchanged, on net, from
(GDP) had decreased at a historically rapid rate in the May to early July; the three-year-ahead measure from the
second quarter. Labor market conditions improved con- Federal Reserve Bank of New York’s Survey of Con-
siderably in June, but the improvements over May and sumer Expectations edged down in June but remained
June were modest relative to the substantial deteriora- within its recent range.
tion seen in March and April. Consumer price infla-
Real PCE rebounded robustly in May, with particularly
tion—as measured by the 12-month percentage change
strong growth in spending for consumer goods but more
in the price index for personal consumption expendi-
moderate gains in expenditures for consumer services.
tures (PCE) through May—remained well below the
In June, the components of retail sales used by the Bu-
rates that prevailed early in the year.
reau of Economic Analysis to estimate PCE, along with
Total nonfarm payroll employment expanded robustly light motor vehicle sales, increased further. Overall,
in June, as it did in May, but the gains in those two however, real consumer spending remained well below
months offset only about one-third of the jobs lost in the levels that prevailed at the beginning of the year.
March and April. The unemployment rate moved down Moreover, recent high-frequency indicators of spending
further to 11.1 percent, but it continued to be far above on many consumer services—such as restaurant dining,
its level at the beginning of the year. The unemployment hotel accommodations, and air travel—remained very
rates for African Americans, Asians, and Hispanics de- subdued. Real disposable personal income fell back in
clined, on balance, over the past two months but re- May, primarily reflecting the waning of the substantial
mained well above the national average. Both the labor boost that federal stimulus payments had provided in
force participation rate and the employment-to-popula- April. However, wage and salary income increased
tion ratio increased further in June. Initial claims for un- strongly in May, though to a level still below its February
employment insurance benefits continued to decrease, value, and unemployment insurance benefits continued
on net, through the middle of July, but the pace of de- to be substantial, leaving the personal saving rate quite
clines had slowed in recent weeks. In addition, weekly elevated. The consumer sentiment measures from both
estimates of private-sector payrolls constructed by the the Michigan survey and the Conference Board survey
Board’s staff using data provided by the payroll proces- improved notably in June but fell back somewhat in July.
sor ADP, along with some other high-frequency
Housing-sector activity bounced back strongly in recent
measures—such as employment at small businesses and
months, likely boosted in part by the effects of low in-
job postings—suggested that employment gains had
terest rates. Starts and building permit issuance for sin-
slowed since mid-June but likely were still strong.
gle-family homes, along with starts of multifamily units,
increased significantly over May and June; however,
Minutes of the Meeting of July 28–29, 2020 Page 5

these construction measures were still below their pre- Incoming data suggested that foreign economic activity
pandemic levels. Sales of existing homes rose substan- plunged in the second quarter as a result of the corona-
tially over those two months, and new home sales also virus pandemic and the measures undertaken to contain
moved up on net. it. There were also signs that many foreign economies
started to recover over the past few months as re-
Indicators of business fixed investment suggested that
strictions were gradually eased. In China, where eco-
investment had generally not begun to recover but that
nomic activity had collapsed in the first quarter and re-
the pace of declines had moderated, on balance, in re-
strictions were rolled back earlier than elsewhere, the
cent months. Nominal new orders and shipments of
preliminary GDP release showed that the economy
nondefense capital goods excluding aircraft increased in
bounced back strongly in the second quarter. In the
May and June, but they remained below their levels at
euro area and other advanced foreign economies, recent
the beginning of the year, while some measures of busi-
data on industrial production and, to a lesser extent, con-
ness sentiment improved. Nominal business spending
sumer spending showed a partial recovery in May and
on nonresidential structures outside of the drilling and
June. However, continued uncertainty about the course
mining sector declined further in May, and the number
of the virus was underscored by the fact that some
of crude oil and natural gas rigs in operation—an indica-
emerging market economies were struggling to control
tor of business spending on structures in the drilling and
the pandemic, while some other countries that previ-
mining sector—continued to decrease through late July.
ously contained the virus were experiencing flare-ups of
Industrial production expanded briskly in May and June, new infections. Inflation rates continued to fall in most
as many factories reopened or ramped up production. foreign economies through June because of low energy
The surge in manufacturing production was led by ap- prices and weak demand, and measures of inflation ex-
preciable gains in the output of motor vehicles and re- pectations remained subdued.
lated parts following extended automaker shutdowns
Staff Review of the Financial Situation
from mid-March through April. In contrast, output in
Amid sizable fluctuations, changes in asset prices over
the mining sector—which includes crude oil extrac-
the intermeeting period were mixed on net. Financial
tion—decreased further, reflecting the effects of still-
market sentiment was boosted by better-than-expected
low crude oil prices.
economic data for the United States, China, and Europe.
Total real government purchases appeared to have in- However, the boost to sentiment appeared to have been
creased moderately, on balance, in the second quarter. offset by concerns about the domestic spread of the
Federal defense spending continued to rise through coronavirus and its uncertain effects on the future
June, and nondefense purchases were likely boosted in course of the economy. On balance, broad equity price
the second quarter by fiscal policy measures taken in re- indexes were roughly unchanged, Treasury yields de-
sponse to the coronavirus. In contrast, state and local clined and the yield curve flattened, corporate and mu-
purchases looked to have declined markedly, as the pay- nicipal bond spreads narrowed, and the dollar weakened
rolls of these governments shrank further in June, and somewhat. Liquidity conditions continued to normalize
nominal state and local construction expenditures de- but had not returned to their pre-pandemic levels in sev-
creased, on net, over April and May. eral markets.
The nominal U.S. international trade deficit widened in Over the intermeeting period, yields on nominal Treas-
May relative to April, as exports decreased more than ury securities fell and the yield curve flattened on net.
imports. The fall in exports was broad based across Yields declined somewhat at the start of the intermeeting
goods categories, while lower imports of automotive period following the more-accommodative-than-ex-
products more than offset higher imports of consumer pected June FOMC communications. The further de-
goods and industrial supplies. Following April’s historic cline in yields that occurred over subsequent weeks likely
plunge, exports and imports of services fell a bit further reflected concerns about the surge in confirmed corona-
in May, driven by the continued suspension of most in- virus cases across many parts of the United States.
ternational travel. Preliminary data for June showed Measures of inflation compensation based on Treasury
some recovery in nominal goods exports and imports. Inflation Protected Securities maturing over the next few
Altogether, the available data suggested that net exports years continued to rebound from their sharp drop in
were a significant drag on the rate of change in real GDP mid-March. The rebound was reportedly driven primar-
in the second quarter. ily by investors’ interpretation of recent economic data,
which suggested that the risk of deflation had abated
Page 6 Federal Open Market Committee

somewhat, as well as by some improvement in market Federal Reserve’s overnight and term repo operations.
liquidity. Despite the uptick, both the 5-year and 10-year Over the intermeeting period, the Federal Reserve main-
measures of inflation compensation remained below tained the purchases of Treasury securities and agency
their pre-pandemic levels. The expected path of the fed- MBS at the pace prevailing at the end of the previous
eral funds rate based on a straight read of overnight in- intermeeting period.
dex swap quotes declined modestly and stayed close to
Risk sentiment abroad fluctuated over the intermeeting
the effective lower bound at least through the first half
period as market participants weighed increasing coro-
of 2024. Market-implied forward rates referring to 2021
navirus cases in a number of countries against improving
and 2022 remained slightly negative; however, market
economic data releases and ongoing fiscal and monetary
commentary suggested that investors generally did not
policy support. Foreign equity prices generally declined
expect the FOMC to lower the federal funds target range
on net. A resurgence of geopolitical tensions between
below zero.
the United States and China weighed on investor senti-
Broad stock price indexes fluctuated substantially, ment late in the period and prompted a partial retrace-
largely in reaction to news about the pandemic and eco- ment of earlier gains for the Shanghai Composite Index.
nomic activity, and ended the intermeeting period Long-term sovereign yields in most advanced foreign
roughly unchanged. Technology stocks continued to economies (AFEs) ended the period moderately lower.
outperform the broader market, whereas equity prices in The yield spreads of long-term Italian bonds over their
the bank and energy sectors fell notably over the period. German counterparts narrowed further, reaching the
One-month option-implied volatility on the S&P 500 in- lowest level since March following agreement on the Eu-
dex—the VIX—rose markedly earlier in the period but ropean Union (EU) Recovery Fund.
subsequently declined and ended the period lower. Eq-
The staff’s broad dollar index declined slightly, on net,
uity market volatility remained elevated relative to its
with moderate depreciation against AFE currencies.
normal range over the past several years. Spreads of in-
The EU Recovery Fund agreement supported the euro,
vestment- and speculative-grade corporate bond yields
which appreciated about 3 percent against the dollar
over comparable-maturity Treasury yields narrowed
over the intermeeting period. In contrast, the Brazilian
somewhat and had retraced most of their pandemic-re-
real depreciated about 5 percent against the dollar, amid
lated surge.
continued policy rate cuts by the Central Bank of Brazil,
Conditions in short-term funding markets were generally escalating coronavirus cases, and political turmoil in Bra-
stable over the intermeeting period. Spreads for nego- zil.
tiable certificates of deposit and most types of commer-
Capital market financing conditions for nonfinancial
cial paper were little changed, on net, and spreads and
firms eased somewhat further over the intermeeting pe-
issuance volumes for both types of instruments reached
riod, with yields on corporate bonds remaining near his-
pre-pandemic levels. In light of the stable market con-
torical lows. Investment-grade corporate bond issuance
ditions, there was little activity in the emergency liquidity
was solid in June, and speculative-grade issuance re-
facilities. Since the June FOMC meeting, assets under
mained robust. Gross institutional leveraged loan issu-
management for prime money market funds (MMFs)
ance picked up in June from its subdued levels in previ-
were little changed, whereas government MMFs experi-
ous months. Gross equity issuance hit a record level in
enced moderate outflows. Amid heavy issuance of se-
June, as the volume of seasoned equity offerings reached
curities by the Treasury, government MMFs continued
a new record, while initial public offerings rebounded
to increase their holdings of Treasury securities while re-
from their very low levels of the previous three months.
ducing their holdings of repos.
In the July Senior Loan Officer Opinion Survey on Bank
The effective federal funds rate (EFFR) and Secured
Lending Practices (SLOOS), banks reported a notable
Overnight Financing Rate (SOFR) increased, on aver-
tightening of lending standards on commercial and in-
age, 4 basis points and 5 basis points, respectively, from
dustrial (C&I) loans to firms of all sizes in the second
the previous intermeeting period. The EFFR fluctuated
quarter. Standards were reported to be at the tighter end
between 8 and 10 basis points, and the SOFR fluctuated
of their range since 2005, a marked change from a year
between 7 and 13 basis points, throughout the inter-
ago. C&I loans on banks’ balance sheets contracted sig-
meeting period. The decline in total outstanding Federal
nificantly in June, reflecting paydowns of the record
Reserve repo operations from $185 billion to zero
draws on credit lines seen in previous months, as well as
largely reflected an increase in minimum bid rates at the
low originations.
Minutes of the Meeting of July 28–29, 2020 Page 7

Credit quality of nonfinancial corporations deteriorated July SLOOS and other surveys of mortgage market con-
further over the intermeeting period, with a sizable vol- ditions suggested that both bank and nonbank lenders
ume of speculative-grade debt downgraded in June. De- tightened standards in the second quarter. The credit
faults in May reached their highest single-month volume quality of mortgages did not appear to deteriorate fur-
since 2009, and June defaults were high as well. Market ther over the period.
indicators of future default expectations also deterio-
Financing conditions for consumer credit tightened a bit
rated somewhat. Municipal market financing conditions
further during the intermeeting period. In the credit
remained accommodative, although the credit quality of
card market, lending standards at commercial banks
municipal debt continued to show signs of weakness.
tightened further according to the July SLOOS. In con-
Financing conditions for small businesses remained trast, conditions in the auto loan market appeared to be
tight. Banks reported in the July SLOOS that the level little changed, on balance, with those for subprime bor-
of standards for small businesses was at the tighter end rowers remaining tight. Conditions in the consumer as-
of the range since 2005. At the same time, the credit set-backed securities (ABS) markets were stable during
needs of small businesses remained high, as the prospect the intermeeting period. Yield spreads for certain highly
arose of many businesses having to shut down opera- rated credit card and auto loan ABS stabilized at pre-
tions again in response to rising coronavirus cases. Small pandemic levels, while student and auto loan ABS issu-
business loan performance deteriorated significantly; ance recovered to a pre-pandemic pace. Consumer
short-term delinquencies were comparable with levels credit quality remained stable, partly due to forbearance
seen in early 2008. Amid tighter lending standards and programs.
high credit demand, advances via the Paycheck Protec-
The staff provided an update on its assessment of the
tion Program Lending Facility continued to grow over
stability of the financial system, and, on balance, charac-
the intermeeting period. In early July, the Main Street
terized the financial vulnerabilities of the U.S. financial
Lending Program became fully operational.
system as notable, while noting an unusually high level
Financing conditions for commercial real estate (CRE), of uncertainty associated with this assessment. The staff
particularly those in capital markets, recovered further judged that asset valuation pressures were notable. In
over the intermeeting period. Spreads on non-agency particular, high-yield and investment-grade corporate
commercial mortgage-backed securities (CMBS) contin- bond spreads were within historical norms, and com-
ued to decline in June, while issuance of non-agency mercial real estate prices were continuing to increase de-
CMBS continued to show signs of moderate recovery in spite rising vacancy rates. The staff assessed vulnerabil-
May and June. Spreads on agency CMBS remained at ities due to nonfinancial leverage to have risen from
pre-pandemic levels, and agency CMBS issuance was moderate to notable, reflecting declines in household in-
strong. In contrast, bank lending standards for CRE comes and business profits; such declines implied less
loans tightened further, according to the July SLOOS, resilient borrowers. The expected sharp decline in sec-
and CRE loan growth at banks slowed. The credit qual- ond-quarter real GDP would likely result in a rise in the
ity of existing CRE loans continued to deteriorate as fur- ratio of household debt to nominal GDP. The ratio of
ther signs of repayment difficulties emerged, most nota- business debt to nominal GDP rose in the first quarter
bly in the lodging and retail sectors. from levels that were already historically high—amid de-
clining profits and deteriorating credit quality—although
Financing conditions in the residential mortgage market
low interest rates had helped ease firms’ debt servicing
were generally unchanged over the intermeeting period.
burdens. The staff assessed vulnerabilities arising from
The spread between the primary mortgage rate and MBS
financial leverage to have increased from low to moder-
yields remained wide, reflecting capacity constraints at
ate, citing uncertainty about losses connected to business
loan originators, increased origination costs, and de-
loans for banks and a higher weight on vulnerabilities
creases in the value of servicing rights. Credit continued
connected to leverage at nonbank financial institutions.
to flow to borrowers with higher credit scores seeking
Vulnerabilities associated with maturity and liquidity
mortgages that met standard conforming loan criteria,
transformation were characterized as moderate, and the
and low mortgage interest rates supported elevated refi-
staff noted that Federal Reserve facilities reduced these
nancing activity. Financing conditions remained tight,
vulnerabilities at nonbanks.
however, for borrowers with relatively low credit scores
and for those seeking nonconforming mortgages. The
Page 8 Federal Open Market Committee

Staff Economic Outlook In this alternative scenario, an acceleration of the coro-

In the U.S. economic projection prepared by the staff navirus outbreak, with another round of strict limita-
for the July FOMC meeting, the estimated level of real tions on social interactions and business operations, was
GDP in the second quarter was marked up compared assumed to begin later this year, leading to a decrease in
with the June meeting forecast, reflecting the better- real GDP, a jump in the unemployment rate, and re-
than-expected data through June. Nevertheless, eco- newed downward pressure on inflation next year. Com-
nomic activity still appeared to have declined at a histor- pared with the baseline, the disruption to economic ac-
ically rapid rate in the second quarter. The projected rate tivity was more severe and protracted in this scenario,
of recovery in real GDP, and the pace of declines in the with real GDP and inflation lower and the unemploy-
unemployment rate, over the second half of this year ment rate higher by the end of the medium-term projec-
were expected to be somewhat less robust than in the tion.
previous forecast. Although the staff assumed that ad-
Participants’ Views on Current Conditions and the
ditional fiscal stimulus measures would be enacted be-
Economic Outlook
yond those anticipated in the June forecast, the positive
Participants noted that the coronavirus pandemic was
effect on the economic outlook was outweighed some-
causing tremendous human and economic hardship
what by the staff’s assessment of the likely effects of sev-
across the United States and around the world. Follow-
eral other factors. Those factors included the increasing
ing sharp declines, economic activity and employment
spread of the coronavirus in the United States since mid-
had picked up somewhat in recent months but remained
June; the reactions of many states and localities in slow-
well below levels at the beginning of the year. Weaker
ing or scaling back the reopening of their economies, es-
demand and significantly lower oil prices were holding
pecially for businesses, such as restaurants and bars,
down consumer price inflation. Overall financial condi-
providing services that entail personal interactions; and
tions had improved in recent months, in part reflecting
some high-frequency indicators that pointed to a decel-
policy measures to support the economy and the flow of
eration in economic activity. Substantial fiscal policy
credit to U.S. households and businesses. Participants
measures—both enacted and anticipated—along with
agreed that the path of the economy would depend on
appreciable support from monetary policy and the Fed-
the course of the virus, which was seen as highly uncer-
eral Reserve’s liquidity and lending facilities were ex-
pected to continue bolstering the economic recovery,
although a complete recovery was not expected by year- Participants noted that the rebound in consumer spend-
end. Inflation was projected to remain subdued this ing from its trough in April had been particularly strong.
year, reflecting the substantial amount of slack in re- Resumption in economic activity, as well as payments to
source utilization and the sizable declines in consumer households under the Coronavirus Aid, Relief, and Eco-
energy prices earlier this year. The staff’s baseline as- nomic Security (CARES) Act, had supported household
sumptions were that the current restrictions on social in- income and consumer expenditures. Participants ob-
teractions and business operations, along with voluntary served that with this rebound, household spending likely
social distancing by individuals, would ease gradually had recovered about half of its previous decline. Con-
through next year. As a result, the rate of real GDP sumers’ purchases of goods—including motor vehicles,
growth was projected to exceed potential output growth, other durables, and especially goods sold online—had
the unemployment rate was expected to decline consid- bounced back much more than their purchases of ser-
erably, and inflation was forecast to pick back up over vices, such as air travel, hotel accommodations, and res-
2021 and 2022. taurant meals, which were disrupted significantly by so-
cial distancing and other effects of the virus. With re-
The staff continued to observe that the uncertainty re-
gard to the behavior of household spending in recent
lated to the economic effects of the pandemic was ex-
weeks, participants pointed to information from District
tremely elevated and that the unusual nature of the pan-
contacts and high-frequency indicators (such as credit
demic-related shock made assessments about how the
and debit card transactions and mobility indicators based
economy might evolve in the future more challenging
on cellphone location tracking) as suggesting that in-
than usual. In light of the significant uncertainty and
creases in some consumer expenditures had likely
downside risks associated with the course of the pan-
slowed in reaction to the further spread of the virus.
demic and how long it would take the economy to re-
Participants noted that households’ spending on discre-
cover, the staff still judged that a more pessimistic pro-
jection was no less plausible than the baseline forecast.
Minutes of the Meeting of July 28–29, 2020 Page 9

tionary services—such as leisure, travel, and hospital- turn, such a reopening would depend in large part on the
ity—would likely be subdued for some time and thus efficacy of health measures taken to limit the spread of
would be a factor restraining the pace of recovery. the virus.
In contrast to the sizable rebound in consumer spend- Participants also discussed the nature of the current sit-
ing, participants saw less improvement in the business uation in the labor market. They noted that the down-
sector in recent months, and they noted that their Dis- turn in employment was concentrated among lower-
trict business contacts continued to report extraordinar- wage and service-sector workers, many of whom were
ily high levels of uncertainty and risks. Several partici- employed in industries most adversely affected by social-
pants relayed examples of some operational difficulties distancing measures. And with lower-wage and service-
their business contacts were reportedly facing in the cur- sector jobs disproportionately held by African Ameri-
rent environment. These difficulties included managing cans, Hispanics, and women, these portions of the pop-
disruptions in supply chains, challenges associated with ulation were bearing a disproportionate share of the eco-
closure and reopening, and elevated employee absentee- nomic hardship caused by the pandemic. Participants
ism in some cases. Furthermore, some participants noted that the fiscal support initiated in the spring
noted that small businesses were under significant strain. through the CARES Act had been very important in
Also, further near-term fiscal support was uncertain. granting some financial relief to millions of families. A
Participants noted that, in light of conditions in the busi- number of participants observed that, with some provi-
ness sector, business investment spending continued to sions of the CARES Act set to expire shortly against the
be subdued. Participants generally agreed that actions of backdrop of a still-weak labor market, additional fiscal
consumers and businesses in taking steps to slow the aid would likely be important for supporting vulnerable
spread of the virus, along with developments in public families, and thus the economy more broadly, in the pe-
health, would be critical in ensuring a durable reopening riod ahead.
of businesses. In addition, monetary policy and particu-
In their comments about inflation, participants generally
larly fiscal policy would also play important roles in sup-
judged that the negative effect of the pandemic on ag-
porting business activity.
gregate demand was more than offsetting upward pres-
Several participants also commented on ongoing chal- sures on some prices stemming from supply constraints
lenges facing the energy or farm sector despite recent or from higher demand for certain products, so that the
improvements. In the energy sector, these challenges in- overall effect of the pandemic on prices was seen as dis-
cluded still-low oil demand, excess inventories, and low inflationary. Recent low monthly readings of PCE prices
oil prices, while in the farm sector they included low suggested that the 12-month change measure of PCE
prices of some farm commodities, pandemic-related dis- price inflation would likely continue to run well below
ruptions in some food processing plants, and a signifi- the Committee’s 2 percent objective for some time.
cant decline in demand for ethanol. Against this backdrop, a few participants noted a risk
that longer-term inflation expectations might move be-
Regarding the labor market, many participants com-
low levels consistent with the Committee’s symmetric
mented that the pace of employment gains, which was
2 percent objective. Participants also noted that a highly
quite strong in May and June, had likely slowed. The
accommodative stance of monetary policy would likely
increasing number of virus cases in many parts of the
be needed for some time to support aggregate demand
country had led to delays in some business reopenings
and achieve 2 percent inflation over the longer run.
and to some reclosures as well. The pace of declines in
initial unemployment insurance claims had slowed in re- Participants observed that many measures of financial
cent weeks, and claims remained at an elevated level. In market functioning were indicating that improvements
addition, participants emphasized that the labor market achieved since the extreme turbulence in March had
was a long way from a full recovery even after the posi- been sustained. Actions by the Federal Reserve, includ-
tive May and June employment reports; these reports in- ing emergency lending facilities established with ap-
dicated that, through June, only about one-third of the proval of (and, in many cases, financial support from)
roughly 22 million loss in jobs that occurred over March the Treasury, had helped ease the strains in some finan-
and April had been offset by subsequent gains. Partici- cial markets seen earlier in the year and were supporting
pants generally agreed that prospects for further sub- the flow of credit to households, businesses, and com-
stantial improvement in the labor market would depend munities. Participants observed that the volume of bor-
on a broad and sustained reopening of businesses. In
Page 10 Federal Open Market Committee

rowing in recent months at many of the Federal Re- In their consideration of monetary policy at this meeting,
serve’s liquidity facilities had stayed low, reflecting im- participants reaffirmed their commitment to using the
proved availability of funding from market sources. And Federal Reserve’s full range of tools to support the U.S.
participants agreed that the Federal Reserve’s ongoing economy during this challenging time, thereby promot-
provision of backstop credit in various forms continued ing its maximum employment and price stability goals.
to be important to sustain the market improvements al- They noted that the path of the economy would depend
ready achieved. significantly on the course of the virus and that the on-
going public health crisis would weigh heavily on eco-
Participants observed that uncertainty surrounding the
nomic activity, employment, and inflation in the near
economic outlook remained very elevated, with the path
term and posed considerable risks to the economic out-
of the economy highly dependent on the course of the
look over the medium term. In light of this assessment,
virus and the public sector’s response to it. Several risks
all participants considered it appropriate to maintain the
to the outlook were noted, including the possibility that
target range for the federal funds rate at 0 to ¼ percent.
additional waves of virus outbreaks could result in ex-
Furthermore, participants continued to judge that it
tended economic disruptions and a protracted period of
would be appropriate to maintain this target range until
reduced economic activity. In such scenarios, banks and
they were confident that the economy had weathered re-
other lenders could tighten conditions in credit markets
cent events and was on track to achieve the Committee’s
appreciably and restrain the availability of credit to
maximum employment and price stability goals.
households and businesses. Other risks cited included
the possibility that fiscal support for households, busi- Participants also judged that, in order to continue to sup-
nesses, and state and local governments might not pro- port the flow of credit to households and businesses, it
vide sufficient relief of financial strains in these sectors would be appropriate over coming months for the Fed-
and that some foreign economies could come under eral Reserve to increase its holdings of Treasury securi-
greater pressure than anticipated as a result of the spread ties and agency residential mortgage-backed securities
of the pandemic abroad. Several participants noted po- (RMBS) and CMBS at least at the current pace. These
tential longer-run effects of the pandemic associated actions would be helpful in sustaining smooth market
with possible restructuring in some sectors of the econ- functioning, thereby fostering the effective transmission
omy that could slow the growth of the economy’s pro- of monetary policy to broader financial conditions. In
ductive capacity for some time. addition, participants noted that it was appropriate that
the Desk would continue to offer large-scale overnight
A number of participants commented on various poten-
and term repo operations. Participants observed that it
tial risks to financial stability. Banks and other financial
would be important to continue to monitor develop-
institutions could come under significant stress, particu-
ments closely and that the Committee would be pre-
larly if one of the more adverse scenarios regarding the
pared to adjust its plans as appropriate.
spread of the virus and its effects on economic activity
was realized. Nonfinancial corporations had carried Participants discussed the current stance of monetary
high levels of indebtedness into the pandemic, increas- policy and the circumstances under which they might in-
ing their risk of insolvency. There were also concerns crease monetary policy accommodation or clarify their
that the anticipated increase in Treasury debt over the intentions regarding policy. Participants generally
next few years could have implications for market func- judged that the Committee’s policy actions over the past
tioning. There was general agreement that these institu- several months had provided substantial accommoda-
tions, activities, and markets should be monitored tion; several of them observed that the Committee’s as-
closely, and a few participants noted that improved data set purchases, which were designed to support financial
would be helpful for doing so. Several participants ob- market functioning and the smooth flow of credit, were
served that the Federal Reserve had recently taken steps likely also providing a degree of policy accommodation.
to help ensure that banks remain resilient through the Noting the increase in uncertainty about the economic
pandemic, including by conducting additional sensitivity outlook over the intermeeting period, several partici-
analysis in conjunction with the most recent bank stress pants suggested that additional accommodation could be
tests and imposing temporary restrictions on share- required to promote economic recovery and return in-
holder payouts to preserve banks’ capital. A couple of flation to the Committee’s 2 percent objective. Some
participants noted that they believed that restrictions on participants observed that, due to the nature of the
shareholder payouts should be extended, while another shock that the U.S. economy was experiencing, strong
judged that such a step would be premature.
Minutes of the Meeting of July 28–29, 2020 Page 11

fiscal policy support would be necessary to encourage markedly. A couple of participants remarked on the
expeditious improvements in labor market conditions. value of yield caps and targets as a means of reinforcing
forward guidance on asset purchases, thereby providing
With regard to the outlook for monetary policy beyond
insurance against adverse movements in market expec-
this meeting, a number of participants noted that provid-
tations regarding the path of monetary policy, and as a
ing greater clarity regarding the likely path of the target
tool that could help limit the amount of asset purchases
range for the federal funds rate would be appropriate at
that the Committee would need to make in pursuing its
some point. Concerning the possible form that revised
dual-mandate goals.
policy communications might take, these participants
commented on outcome-based forward guidance—un- Committee Policy Action
der which the Committee would undertake to maintain In their discussion of monetary policy for this meeting,
the current target range for the federal funds rate at least members agreed that the coronavirus outbreak was caus-
until one or more specified economic outcomes was ing tremendous human and economic hardship across
achieved—and also touched on calendar-based forward the United States and around the world. Following
guidance—under which the current target range would sharp declines, economic activity and employment had
be maintained at least until a particular calendar date. In picked up somewhat in recent months but remained well
the context of outcome-based forward guidance, various below their levels at the beginning of the year. Con-
participants mentioned using thresholds calibrated to in- sumer price inflation was being held down by weaker de-
flation outcomes, unemployment rate outcomes, or mand and significantly lower oil prices. Overall financial
combinations of the two, as well as combinations with conditions had improved, in part reflecting policy
calendar-based guidance. In addition, many participants measures to support the economy and the flow of credit
commented that it might become appropriate to frame to U.S. households, businesses, and communities. Mem-
communications regarding the Committee’s ongoing as- bers agreed that the Federal Reserve was committed to
set purchases more in terms of their role in fostering ac- using its full range of tools to support the U.S. economy
commodative financial conditions and supporting eco- in this challenging time, thereby promoting its maximum
nomic recovery. More broadly, in discussing the policy employment and price stability goals.
outlook, a number of participants observed that com-
Members stated that the path of the economy would de-
pleting a revised Statement on Longer-Run Goals and
pend significantly on the course of the virus. In addi-
Monetary Policy Strategy would be very helpful in
tion, members agreed that the ongoing public health cri-
providing an overarching framework that would help
sis would weigh heavily on economic activity, employ-
guide the Committee’s future policy actions and com-
ment, and inflation in the near term and was posing con-
siderable risks to the economic outlook over the me-
A majority of participants commented on yield caps and dium term. In light of these developments, members
targets—approaches that cap or target interest rates decided to maintain the target range for the federal funds
along the yield curve—as a monetary policy tool. Of rate at 0 to ¼ percent. Members stated that they ex-
those participants who discussed this option, most pected to maintain this target range until they were con-
judged that yield caps and targets would likely provide fident that the economy had weathered recent events
only modest benefits in the current environment, as the and was on track to achieve the Committee’s maximum
Committee’s forward guidance regarding the path of the employment and price stability goals.
federal funds rate already appeared highly credible and
Members agreed that they would continue to monitor
longer-term interest rates were already low. Many of
the implications of incoming information for the eco-
these participants also pointed to potential costs associ-
nomic outlook—including information related to public
ated with yield caps and targets. Among these costs, par-
health—as well as global developments and muted infla-
ticipants noted the possibility of an excessively rapid ex-
tion pressures, and that they would use the Committee’s
pansion of the balance sheet and difficulties in the design
tools and act as appropriate to support the economy. In
and communication of the conditions under which such
determining the timing and size of future adjustments to
a policy would be terminated, especially in conjunction
the stance of monetary policy, members noted that they
with forward guidance regarding the policy rate. In light
would assess realized and expected economic conditions
of these concerns, many participants judged that yield
relative to the Committee’s maximum-employment ob-
caps and targets were not warranted in the current envi-
jective and its symmetric 2 percent inflation objective.
ronment but should remain an option that the Commit-
This assessment would take into account a wide range of
tee could reassess in the future if circumstances changed
Page 12 Federal Open Market Committee

information, including measures of labor market condi- payments from the Federal Reserve’s hold-
tions, indicators of inflation pressures and inflation ex- ings of agency debt and agency MBS in
pectations, and readings on financial and international agency MBS and all principal payments
developments. from holdings of agency CMBS in agency
To support the flow of credit to households and busi-
• Allow modest deviations from stated
nesses, members agreed that over coming months it
would be appropriate for the Federal Reserve to increase amounts for purchases and reinvestments,
its holdings of Treasury securities and agency RMBS and if needed for operational reasons.
CMBS at least at the current pace to sustain smooth mar- • Engage in dollar roll and coupon swap
ket functioning, thereby fostering effective transmission transactions as necessary to facilitate settle-
of monetary policy to broader financial conditions. In ment of the Federal Reserve’s agency MBS
addition, members agreed that the Desk would continue transactions.”
to offer large-scale overnight and term repo operations. The vote also encompassed approval of the statement
Members noted that they would closely monitor devel- below for release at 2:00 p.m.:
opments and be prepared to adjust their plans as appro- “The Federal Reserve is committed to using its
priate. full range of tools to support the U.S. economy
At the conclusion of the discussion, the Committee in this challenging time, thereby promoting its
voted to authorize and direct the Federal Reserve Bank maximum employment and price stability goals.
of New York, until instructed otherwise, to execute The coronavirus outbreak is causing tremen-
transactions in the SOMA in accordance with the fol- dous human and economic hardship across the
lowing domestic policy directive, for release at 2:00 p.m.: United States and around the world. Following
“Effective July 30, 2020, the Federal Open Mar- sharp declines, economic activity and employ-
ket Committee directs the Desk to: ment have picked up somewhat in recent
months but remain well below their levels at the
• Undertake open market operations as nec- beginning of the year. Weaker demand and sig-
essary to maintain the federal funds rate in nificantly lower oil prices are holding down con-
a target range of 0 to ¼ percent. sumer price inflation. Overall financial condi-
• Increase the System Open Market Account tions have improved in recent months, in part
holdings of Treasury securities, agency reflecting policy measures to support the econ-
mortgage-backed securities (MBS), and omy and the flow of credit to U.S. households
agency commercial mortgage-backed secu- and businesses.
rities (CMBS) at least at the current pace to
The path of the economy will depend signifi-
sustain smooth functioning of markets for
cantly on the course of the virus. The ongoing
these securities, thereby fostering effective
public health crisis will weigh heavily on eco-
transmission of monetary policy to broader
nomic activity, employment, and inflation in the
financial conditions.
near term, and poses considerable risks to the
• Conduct term and overnight repurchase
economic outlook over the medium term. In
agreement operations to support effective
light of these developments, the Committee de-
policy implementation and the smooth
cided to maintain the target range for the federal
functioning of short-term U.S. dollar fund-
funds rate at 0 to ¼ percent. The Committee
ing markets.
expects to maintain this target range until it is
• Conduct overnight reverse repurchase confident that the economy has weathered re-
agreement operations at an offering rate of cent events and is on track to achieve its maxi-
0.00 percent and with a per-counterparty mum employment and price stability goals.
limit of $30 billion per day; the per-counter-
party limit can be temporarily increased at The Committee will continue to monitor the
the discretion of the Chair. implications of incoming information for the
• Roll over at auction all principal payments economic outlook, including information re-
from the Federal Reserve’s holdings of lated to public health, as well as global develop-
Treasury securities and reinvest all principal ments and muted inflation pressures, and will
use its tools and act as appropriate to support
Minutes of the Meeting of July 28–29, 2020 Page 13

the economy. In determining the timing and H. Clarida, Patrick Harker, Robert S. Kaplan, Neel
size of future adjustments to the stance of mon- Kashkari, Loretta J. Mester, and Randal K. Quarles.
etary policy, the Committee will assess realized
Voting against this action: None.
and expected economic conditions relative to its
maximum employment objective and its sym- Consistent with the Committee’s decision to leave the
metric 2 percent inflation objective. This as- target range for the federal funds rate unchanged, the
sessment will take into account a wide range of Board of Governors voted unanimously to leave the in-
information, including measures of labor mar- terest rates on required and excess reserve balances at
ket conditions, indicators of inflation pressures 0.10 percent. The Board of Governors also voted unan-
and inflation expectations, and readings on fi- imously to approve establishment of the primary credit
nancial and international developments. rate at the existing level of 0.25 percent, effective July 30,
To support the flow of credit to households and
businesses, over coming months the Federal It was agreed that the next meeting of the Committee
Reserve will increase its holdings of Treasury se- would be held on Tuesday–Wednesday, Septem-
curities and agency residential and commercial ber 15–16, 2020. The meeting adjourned at 10:55 a.m.
mortgage-backed securities at least at the cur- on July 29, 2020.
rent pace to sustain smooth market functioning,
Notation Vote
thereby fostering effective transmission of
By notation vote completed on June 30, 2020, the Com-
monetary policy to broader financial conditions.
mittee unanimously approved the minutes of the Com-
In addition, the Open Market Desk will con-
mittee meeting held on June 9–10, 2020.
tinue to offer large-scale overnight and term re-
purchase agreement operations. The Commit-
tee will closely monitor developments and is
prepared to adjust its plans as appropriate.” _______________________
James A. Clouse
Voting for this action: Jerome H. Powell, John C.
Williams, Michelle W. Bowman, Lael Brainard, Richard