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Minutes of the Federal Open Market Committee

January 26–27, 2021

A joint meeting of the Federal Open Market Committee Ann E. Misback, Secretary, Office of the Secretary,
and the Board of Governors was held by videoconfer- Board of Governors
ence on Tuesday, January 26, 2021, at 1:00 p.m. and con-
tinued on Wednesday, January 27, 2021, at 9:00 a.m. 1 Matthew J. Eichner, 2 Director, Division of Reserve
Bank Operations and Payment Systems, Board of
PRESENT: Governors; Michael S. Gibson, Director, Division
Jerome H. Powell, Chair of Supervision and Regulation, Board of
John C. Williams, Vice Chair Governors; Andreas Lehnert, Director, Division of
Thomas I. Barkin Financial Stability, Board of Governors
Raphael W. Bostic
Michelle W. Bowman Daniel M. Covitz, Deputy Director, Division of
Lael Brainard Research and Statistics, Board of Governors; Sally
Richard H. Clarida Davies, Deputy Director, Division of International
Mary C. Daly Finance, Board of Governors; Michael T. Kiley,
Charles L. Evans Deputy Director, Division of Financial Stability,
Randal K. Quarles Board of Governors
Christopher J. Waller
Jon Faust, Senior Special Adviser to the Chair, Division
James Bullard, Esther L. George, Loretta J. Mester, of Board Members, Board of Governors
Helen E. Mucciolo, and Eric Rosengren, Alternate
Members of the Federal Open Market Committee Joshua Gallin, Special Adviser to the Chair, Division of
Board Members, Board of Governors
Patrick Harker, Robert S. Kaplan, and Neel Kashkari,
Presidents of the Federal Reserve Banks of William F. Bassett, Antulio N. Bomfim, Wendy E.
Philadelphia, Dallas, and Minneapolis, respectively Dunn, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F.
Lewis, and Chiara Scotti, Special Advisers to the
James A. Clouse, Secretary Board, Division of Board Members, Board of
Matthew M. Luecke, Deputy Secretary Governors
Michelle A. Smith, Assistant Secretary
Mark E. Van Der Weide, General Counsel John J. Stevens, Senior Associate Director, Division of
Michael Held, Deputy General Counsel Research and Statistics, Board of Governors;
Trevor A. Reeve, Economist Gretchen C. Weinbach, Senior Associate Director,
Stacey Tevlin, Economist Division of Monetary Affairs, Board of Governors
Beth Anne Wilson, Economist
Ellen E. Meade and Robert J. Tetlow, Senior Advisers,
Shaghil Ahmed, David Altig, Kartik B. Athreya, Brian Division of Monetary Affairs, Board of Governors;
M. Doyle, Rochelle M. Edge, Eric M. Engen, Steven A. Sharpe, Senior Adviser, Division of
Beverly Hirtle, and William Wascher, Associate Research and Statistics, Board of Governors
Marnie Gillis DeBoer and Min Wei, Associate
Lorie K. Logan, Manager, System Open Market Directors, Division of Monetary Affairs, Board of
Account Governors; Andrew Figura, Associate Director,
Division of Research and Statistics, Board of
Patricia Zobel, Deputy Manager, System Open Market Governors

1The Federal Open Market Committee is referenced as the 2 Attended through the discussion of developments in finan-
“FOMC” and the “Committee” in these minutes. cial markets and open market operations.
Page 2 Federal Open Market Committee

Eric C. Engstrom, Deputy Associate Director, Division Andrew Foerster, Research Advisor, Federal Reserve
of Monetary Affairs, Board of Governors; Jeffrey Bank of San Francisco
D. Walker,2 Deputy Associate Director, Division
of Reserve Bank Operations and Payment Systems, Annual Organizational Matters 3
Board of Governors The agenda for this meeting reported that advices of the
election of the following members and alternate mem-
Jennifer Gallagher, Special Assistant to the Board, bers of the Federal Open Market Committee for a term
Division of Board Members, Board of Governors beginning January 26, 2021, were received and that these
individuals executed their oaths of office.
Brian J. Bonis, Assistant Director, Division of
The elected members and alternate members were as fol-
Monetary Affairs, Board of Governors
Penelope A. Beattie, Section Chief, Office of the John C. Williams, President of the Federal Reserve Bank
Secretary, Board of Governors of New York, with Helen E. Mucciolo, First Vice Presi-
dent of the Federal Reserve Bank of New York, as alter-
Mark A. Carlson, Senior Economic Project Manager, nate
Division of Monetary Affairs, Board of Governors
Thomas I. Barkin, President of the Federal Reserve
Bank of Richmond, with Eric Rosengren, President of
David H. Small, Project Manager, Division of
the Federal Reserve Bank of Boston, as alternate
Monetary Affairs, Board of Governors
Charles L. Evans, President of the Federal Reserve Bank
Michele Cavallo, Olesya Grishchenko, Horacio Sapriza, of Chicago, with Loretta J. Mester, President of the Fed-
and Fabian Winkler, Principal Economists, eral Reserve Bank of Cleveland, as alternate
Division of Monetary Affairs, Board of Governors; Raphael W. Bostic, President of the Federal Reserve
Pablo Cuba-Borda, Principal Economist, Division Bank of Atlanta, with James Bullard, President of the
of International Finance, Board of Governors; Federal Reserve Bank of St. Louis, as alternate
Andrew Paciorek, Principal Economist, Division
of Research and Statistics, Board of Governors Mary C. Daly, President of the Federal Reserve Bank of
San Francisco, with Esther L. George, President of the
Randall A. Williams, Lead Information Manager, Federal Reserve Bank of Kansas City, as alternate
Division of Monetary Affairs, Board of Governors By unanimous vote, the following officers of the Com-
mittee were selected to serve until the selection of their
Joseph W. Gruber, Daleep Singh, and Ellis W. Tallman, successors at the first regularly scheduled meeting of the
Executive Vice Presidents, Federal Reserve Banks Committee in 2022:
of Kansas City, New York, and Cleveland,
respectively Jerome H. Powell Chair
John C. Williams Vice Chair
David Andolfatto, Spencer Krane, Keith Sill, and Mark James A. Clouse Secretary
L.J. Wright, Senior Vice Presidents, Federal Matthew M. Luecke Deputy Secretary
Reserve Banks of St. Louis, Chicago, Philadelphia, Michelle A. Smith Assistant Secretary
and Minneapolis, respectively Mark E. Van Der Weide General Counsel
Michael Held Deputy General Counsel
Joe Peek, Vice President, Federal Reserve Bank of Richard M. Ashton Assistant General Counsel
Boston Trevor Reeve Economist
Stacey Tevlin Economist
James Dolmas, Economic Policy Advisor and Senior Beth Anne Wilson Economist
Research Economist, Federal Reserve Bank of

3 Committee organizational documents are available at
Minutes of the Meeting of January 26–27, 2021 Page 3

Shaghil Ahmed States, that are eligible for purchase or sale under Sec-
David Altig tion 14(b) of the Federal Reserve Act (“Eligible Secu-
Kartik B. Athreya rities”) for the System Open Market Account
Brian M. Doyle (“SOMA”):
Rochelle M. Edge i. As an outright operation with securities dealers
Eric M. Engen and foreign and international accounts maintained
Beverly Hirtle
at the Selected Bank: on a same-day or deferred de-
Sylvain Leduc
Anna Paulson livery basis (including such transactions as are com-
William Wascher Associate Economists monly referred to as dollar rolls and coupon swaps)
at market prices; or
By unanimous vote, the Committee selected the Federal ii. As a temporary operation: on a same-day or
Reserve Bank of New York to execute transactions for deferred delivery basis, to purchase such Eligible Se-
the System Open Market Account (SOMA).
curities subject to an agreement to resell (“repo
By unanimous vote, the Committee selected Lorie K. transactions”) or to sell such Eligible Securities sub-
Logan and Patricia Zobel to serve at the pleasure of the ject to an agreement to repurchase (“reverse repo
Committee as manager and deputy manager of the transactions”) for a term of 65 business days or less,
SOMA, respectively, on the understanding that these se- at rates that, unless otherwise authorized by the
lections were subject to being satisfactory to the Federal Committee, are determined by competitive bidding,
Reserve Bank of New York.
after applying reasonable limitations on the volume
Secretary’s note: The Federal Reserve Bank of of agreements with individual counterparties;
New York subsequently sent advice that the B. To allow Eligible Securities in the SOMA to ma-
manager and deputy manager selections indi- ture without replacement;
cated previously were satisfactory. C. To exchange, at market prices, in connection
By unanimous vote, the Committee voted to reaffirm with a Treasury auction, maturing Eligible Securities in
without revision the Authorization for Domestic Open the SOMA with the Treasury, in the case of Eligible
Market Operations, the Authorization for Foreign Cur- Securities that are direct obligations of the United
rency Operations, and the Foreign Currency Directive, States or that are fully guaranteed as to principal and
as shown below. The Guidelines for the Conduct of interest by the United States; and
System Open Market Operations in Federal-Agency Is- D. To exchange, at market prices, maturing Eligible
sues remained suspended. Securities in the SOMA with an agency of the United
States, in the case of Eligible Securities that are direct
AUTHORIZATION FOR DOMESTIC OPEN obligations of that agency or that are fully guaranteed
MARKET OPERATIONS as to principal and interest by that agency.
(As reaffirmed effective January 26, 2021)

1. The Federal Open Market Committee (the “Com- 2. In order to ensure the effective conduct of open
mittee”) authorizes and directs the Federal Reserve Bank market operations, the Committee authorizes the Se-
selected by the Committee to execute open market trans- lected Bank to operate a program to lend Eligible Secu-
actions (the “Selected Bank”), to the extent necessary to rities held in the SOMA to dealers on an overnight basis
carry out the most recent domestic policy directive (except that the Selected Bank may lend Eligible Securi-
adopted by the Committee: ties for longer than an overnight term to accommodate
A. To buy or sell in the open market securities that weekend, holiday, and similar trading conventions).
are direct obligations of, or fully guaranteed as to prin- A. Such securities lending must be:
cipal and interest by, the United States, and securities i. At rates determined by competitive bidding;
that are direct obligations of, or fully guaranteed as to ii. At a minimum lending fee consistent with the
principal and interest by, any agency of the United objectives of the program;
Page 4 Federal Open Market Committee

iii. Subject to reasonable limitations on the total A. The Selected Bank, for the SOMA, to:
amount of a specific issue of Eligible Securities that i. Undertake reverse repo transactions in Eligible
may be auctioned; and Securities held in the SOMA with the Customer Ac-
iv. Subject to reasonable limitations on the counts for a term of 65 business days or less; and
amount of Eligible Securities that each borrower ii. Undertake repo transactions in Eligible Securi-
may borrow. ties with Foreign Accounts; and
B. The Selected Bank may: B. Any Federal Reserve Bank that maintains Cus-
i. Reject bids that, as determined in its sole dis- tomer Accounts, for any such Customer Account,
cretion, could facilitate a bidder’s ability to control a when appropriate and subject to all other necessary
single issue; authorization and approvals, to:
ii. Accept Treasury securities or cash as collateral i. Undertake repo transactions in Eligible Securi-
for any loan of securities authorized in this para- ties with dealers with a corresponding reverse repo
graph 2; and transaction in such Eligible Securities with the Cus-
iii. Accept agency securities as collateral only for a tomer Accounts; and
loan of agency securities authorized in this para- ii. Undertake intra-day repo transactions in Eligi-
graph 2. ble Securities with Foreign Accounts.
Transactions undertaken with Customer Accounts un-
OPERATIONAL READINESS TESTING der the provisions of this paragraph 4 may provide for a
service fee when appropriate. Transactions undertaken
3. The Committee authorizes the Selected Bank to with Customer Accounts are also subject to the authori-
undertake transactions of the type described in para- zation or approval of other entities, including the Board
graphs 1 and 2 from time to time for the purpose of test- of Governors of the Federal Reserve System and, when
ing operational readiness, subject to the following limi- involving accounts maintained at a Federal Reserve
tations: Bank as fiscal agent of the United States, the United
A. All transactions authorized in this paragraph 3 States Department of the Treasury.
shall be conducted with prior notice to the Commit-
B. The aggregate par value of the transactions au-
thorized in this paragraph 3 that are of the type de- 5. The Committee authorizes the Chair of the Com-
scribed in paragraph 1.A.i, 1.B, 1.C and 1.D shall not mittee, in fostering the Committee’s objectives during
exceed $5 billion per calendar year; and any period between meetings of the Committee, to in-
C. The outstanding amount of the transactions de- struct the Selected Bank to act on behalf of the Commit-
scribed in paragraphs 1.A.ii and 2 shall not exceed $5 tee to:
billion at any given time. A. Adjust somewhat in exceptional circumstances
the stance of monetary policy and to take actions that
TRANSACTIONS WITH CUSTOMER ACCOUNTS may result in material changes in the composition and
size of the assets in the SOMA; or
4. In order to ensure the effective conduct of open B. Undertake transactions with respect to Eligible
market operations, while assisting in the provision of Securities in order to appropriately address temporary
short-term investments or other authorized services for disruptions of an operational or highly unusual nature
foreign central bank and international accounts main- in U.S. dollar funding markets.
tained at a Federal Reserve Bank (the “Foreign Ac- Any such adjustment described in subparagraph A of
counts”) and accounts maintained at a Federal Reserve this paragraph 5 shall be made in the context of the
Bank as fiscal agent of the United States pursuant to sec- Committee’s discussion and decision about the stance of
tion 15 of the Federal Reserve Act (together with the policy at its most recent meeting and the Committee’s
Foreign Accounts, the “Customer Accounts”), the Com- long-run objectives to foster maximum employment and
mittee authorizes the following when undertaken on price stability, and shall be based on economic, financial,
terms comparable to those available in the open market:
Minutes of the Meeting of January 26–27, 2021 Page 5

and monetary developments since the most recent meet- C. In consultation, as appropriate, with foreign
ing of the Committee. The Chair, whenever feasible, will monetary authorities, foreign central banks, and inter-
consult with the Committee before making any instruc- national monetary institutions.
tion under this paragraph 5. D. At prevailing market rates.


(As reaffirmed effective January 26, 2021)
IN GENERAL 3. For any operation that involves standalone spot or
forward transactions in foreign currencies:
1. The Federal Open Market Committee (the “Com- A. Approval of such operation is required as fol-
mittee”) authorizes the Federal Reserve Bank selected by lows:
the Committee (the “Selected Bank”) to execute open i. The Committee must direct the Selected Bank
market transactions for the System Open Market Ac- in advance to execute the operation if it would result
count as provided in this Authorization, to the extent in the overall volume of standalone spot and for-
necessary to carry out any foreign currency directive of ward transactions in foreign currencies, as defined
the Committee: in paragraph 3.C of this Authorization, exceeding
A. To purchase and sell foreign currencies (also $5 billion since the close of the most recent regular
known as cable transfers) at home and abroad in the meeting of the Committee. The Foreign Currency
open market, including with the United States Treas- Subcommittee (the “Subcommittee”) must direct
ury, with foreign monetary authorities, with the Bank the Selected Bank in advance to execute the opera-
for International Settlements, and with other entities tion if the Subcommittee believes that consultation
in the open market. This authorization to purchase with the Committee is not feasible in the time avail-
and sell foreign currencies encompasses purchases and able.
sales through standalone spot or forward transactions ii. The Committee authorizes the Subcommittee
and through foreign exchange swap transactions. For to direct the Selected Bank in advance to execute the
purposes of this Authorization, foreign exchange operation if it would result in the overall volume of
swap transactions are: swap transactions with the standalone spot and forward transactions in foreign
United States Treasury (also known as warehousing currencies, as defined in paragraph 3.C of this Au-
transactions), swap transactions with other central thorization, totaling $5 billion or less since the close
banks under reciprocal currency arrangements, swap of the most recent regular meeting of the Commit-
transactions with other central banks under standing tee.
dollar liquidity and foreign currency liquidity swap ar- B. Such an operation also shall be:
rangements, and swap transactions with other entities i. Generally directed at countering disorderly
in the open market. market conditions; or
B. To hold balances of, and to have outstanding for- ii. Undertaken to adjust System balances in light
ward contracts to receive or to deliver, foreign curren- of probable future needs for currencies; or
cies. iii. Conducted for such other purposes as may be
2. All transactions in foreign currencies undertaken determined by the Committee.
pursuant to paragraph 1 above shall, unless otherwise C. For purposes of this Authorization, the overall
authorized by the Committee, be conducted: volume of standalone spot and forward transactions
A. In a manner consistent with the obligations re- in foreign currencies is defined as the sum (disregard-
garding exchange arrangements under Article IV of ing signs) of the dollar values of individual foreign cur-
the Articles of Agreement of the International Mone- rencies purchased and sold, valued at the time of the
tary Fund (IMF).1 transaction.
B. In close and continuous cooperation and consul-
tation, as appropriate, with the United States Treasury.
Page 6 Federal Open Market Committee

WAREHOUSING risk that they could emerge, so as to mitigate their ef-

fects on economic and financial conditions in the
4. The Committee authorizes the Selected Bank, with United States.
the prior approval of the Subcommittee and at the re- E. For reciprocal currency arrangements, standing
quest of the United States Treasury, to conduct swap and temporary dollar liquidity swap arrangements, and
transactions with the United States Exchange Stabiliza- standing foreign currency liquidity swap arrangements:
tion Fund established by section 10 of the Gold Reserve i. All arrangements are subject to annual review
Act of 1934 under agreements in which the Selected and approval by the Committee;
Bank purchases foreign currencies from the Exchange ii. Any new arrangements must be approved by
Stabilization Fund and the Exchange Stabilization Fund the Committee; and
repurchases the foreign currencies from the Selected iii. Any changes in the terms of existing arrange-
Bank at a later date (such purchases and sales also known ments must be approved in advance by the Chair.
as warehousing). The Chair shall keep the Committee informed of
any changes in terms, and the terms shall be con-
RECIPROCAL CURRENCY ARRANGEMENTS, sistent with principles discussed with and guidance
AND STANDING DOLLAR AND FOREIGN CUR- provided by the Committee.
5. The Committee authorizes the Selected Bank to CIES
maintain reciprocal currency arrangements established
under the North American Framework Agreement, 6. Any other operations in foreign currencies for
standing dollar liquidity swap arrangements, temporary which governance is not otherwise specified in this Au-
dollar liquidity swap arrangements, and standing foreign thorization (such as foreign exchange swap transactions
currency liquidity swap arrangements as provided in this with private-sector counterparties) must be authorized
Authorization and to the extent necessary to carry out and directed in advance by the Committee.
any foreign currency directive of the Committee.
A. For reciprocal currency arrangements all draw- FOREIGN CURRENCY HOLDINGS
ings must be approved in advance by the Committee
(or by the Subcommittee, if the Subcommittee be- 7. The Committee authorizes the Selected Bank to
lieves that consultation with the Committee is not fea- hold foreign currencies for the System Open Market Ac-
sible in the time available). count in accounts maintained at foreign central banks,
B. For standing and temporary dollar liquidity swap the Bank for International Settlements, and such other
arrangements all drawings must be approved in ad- foreign institutions as approved by the Board of Gover-
vance by the Chair. The Chair may approve a schedule nors under Section 214.5 of Regulation N, to the extent
of potential drawings, and may delegate to the man- necessary to carry out any foreign currency directive of
ager, System Open Market Account, the authority to the Committee.
approve individual drawings that occur according to A. The Selected Bank shall manage all holdings of
the schedule approved by the Chair. foreign currencies for the System Open Market Ac-
C. For standing foreign currency liquidity swap ar- count:
rangements all drawings must be approved in advance i. Primarily, to ensure sufficient liquidity to ena-
by the Committee (or by the Subcommittee, if the ble the Selected Bank to conduct foreign currency
Subcommittee believes that consultation with the operations as directed by the Committee;
Committee is not feasible in the time available). ii. Secondarily, to maintain a high degree of
D. Operations involving standing and temporary safety;
dollar liquidity swap arrangements and standing for- iii. Subject to paragraphs 7.A.i and 7.A.ii, to pro-
vide the highest rate of return possible in each cur-
eign currency liquidity swap arrangements shall gener-
rency; and
ally be directed at countering strains in financial mar-
iv. To achieve such other objectives as may be au-
kets in the United States or abroad, or reducing the thorized by the Committee.
Minutes of the Meeting of January 26–27, 2021 Page 7

B. The Selected Bank may manage such foreign cur- 10. All Federal Reserve banks shall participate in the
rency holdings by: foreign currency operations for System Open Market
i. Purchasing and selling obligations of, or fully Account in accordance with paragraph 3G(1) of the
guaranteed as to principal and interest by, a foreign Board of Governors’ Statement of Procedure with Re-
government or agency thereof (“Permitted Foreign spect to Foreign Relationships of Federal Reserve Banks
Securities”) through outright purchases and sales; dated January 1, 1944.
ii. Purchasing Permitted Foreign Securities under 11. Any authority of the Subcommittee pursuant to
agreements for repurchase of such Permitted For- this Authorization may be exercised by the Chair if the
eign Securities and selling such securities under Chair believes that consultation with the Subcommittee
agreements for the resale of such securities; and is not feasible in the time available. The Chair shall
iii. Managing balances in various time and other promptly report to the Subcommittee any action ap-
deposit accounts at foreign institutions approved by proved by the Chair pursuant to this paragraph.
the Board of Governors under Regulation N. 12. The Committee authorizes the Chair, in excep-
C. The Subcommittee, in consultation with the tional circumstances where it would not be feasible to
Committee, may provide additional instructions to the convene the Committee, to foster the Committee’s ob-
Selected Bank regarding holdings of foreign curren- jectives by instructing the Selected Bank to engage in
cies. foreign currency operations not otherwise authorized
pursuant to this Authorization. Any such action shall be
made in the context of the Committee’s discussion and
decisions regarding foreign currency operations. The
Chair, whenever feasible, will consult with the Commit-
8. The Committee authorizes the Chair: tee before making any instruction under this paragraph.
A. With the prior approval of the Committee, to en- __________________________
ter into any needed agreement or understanding with 1 In general, as specified in Article IV, each member of the
the Secretary of the United States Treasury about the IMF undertakes to collaborate with the IMF and other
division of responsibility for foreign currency opera- members to assure orderly exchange arrangements and to
tions between the System and the United States Treas- promote a stable system of exchange rates. These obligations
include seeking to direct the member’s economic and
ury; financial policies toward the objective of fostering orderly
B. To advise the Secretary of the United States economic growth with reasonable price stability. These
Treasury concerning System foreign currency opera- obligations also include avoiding manipulating exchange
tions, and to consult with the Secretary on policy mat- rates or the international monetary system in such a way that
ters relating to foreign currency operations; would impede effective balance of payments adjustment or
to give an unfair competitive advantage over other members.
C. To designate Federal Reserve System persons au-
thorized to communicate with the United States FOREIGN CURRENCY DIRECTIVE
Treasury concerning System Open Market Account (As reaffirmed effective January 26, 2021)
foreign currency operations; and
D. From time to time, to transmit appropriate re- 1. The Committee directs the Federal Reserve Bank
ports and information to the National Advisory Coun- selected by the Committee (the “Selected Bank”) to ex-
ecute open market transactions, for the System Open
cil on International Monetary and Financial Policies.
Market Account, in accordance with the provisions of
9. The Committee authorizes the Selected Bank to the Authorization for Foreign Currency Operations (the
undertake transactions of the type described in this Au- “Authorization”) and subject to the limits in this Di-
thorization, and foreign exchange and investment rective.
transactions that it may be otherwise authorized to 2. The Committee directs the Selected Bank to exe-
undertake, from time to time for the purpose of testing cute warehousing transactions, if so requested by the
operational readiness. The aggregate amount of such United States Treasury and if approved by the Foreign
transactions shall not exceed $2.5 billion per calendar Currency Subcommittee (the “Subcommittee”), subject
year. These transactions shall be conducted with prior to the limitation that the outstanding balance of United
notice to the Committee. States dollars provided to the United States Treasury as
Page 8 Federal Open Market Committee

a result of these transactions not at any time exceed 5. The Committee directs the Selected Bank to report
$5 billion. to the Committee, at each regular meeting of the Com-
3. The Committee directs the Selected Bank to main- mittee, on transactions undertaken pursuant to para-
tain, for the System Open Market Account: graphs 1 and 6 of the Authorization. The Selected Bank
A. Reciprocal currency arrangements with the fol- is also directed to provide quarterly reports to the Com-
lowing foreign central banks: mittee regarding the management of the foreign cur-
rency holdings pursuant to paragraph 7 of the Authori-
Foreign central bank Maximum amount zation.
(millions of dollars 6. The Committee directs the Selected Bank to con-
or equivalent) duct testing of transactions for the purpose of opera-
Bank of Canada 2,000 tional readiness in accordance with the provisions of
Bank of Mexico 3,000 paragraph 9 of the Authorization.

B. Standing dollar liquidity swap arrangements with By unanimous vote, the Committee reaffirmed its Pro-
the following foreign central banks: gram for Security of FOMC Information with minor
technical changes.
Bank of Canada
Bank of England In the Committee’s annual reconsideration of the State-
Bank of Japan ment on Longer-Run Goals and Monetary Policy Strat-
European Central Bank egy, all participants supported the statement as written,
Swiss National Bank and the Committee voted unanimously to reaffirm
without revision.
C. Temporary dollar liquidity swap arrangements
with the following foreign central banks: MONETARY POLICY STRATEGY
(As reaffirmed effective January 26, 2021)
Reserve Bank of Australia
National Bank of Denmark The Federal Open Market Committee (FOMC) is
firmly committed to fulfilling its statutory mandate from
Reserve Bank of New Zealand
the Congress of promoting maximum employment, sta-
Bank of Norway
ble prices, and moderate long-term interest rates. The
Bank of Sweden Committee seeks to explain its monetary policy deci-
Central Bank of Brazil sions to the public as clearly as possible. Such clarity
Bank of Mexico facilitates well-informed decisionmaking by households
Bank of Korea and businesses, reduces economic and financial uncer-
Monetary Authority of Singapore tainty, increases the effectiveness of monetary policy,
and enhances transparency and accountability, which are
D. Standing foreign currency liquidity swap arrange- essential in a democratic society.
ments with the following foreign central banks: Employment, inflation, and long-term interest rates
fluctuate over time in response to economic and finan-
Bank of Canada cial disturbances. Monetary policy plays an important
Bank of England role in stabilizing the economy in response to these dis-
turbances. The Committee’s primary means of adjusting
Bank of Japan
the stance of monetary policy is through changes in the
European Central Bank target range for the federal funds rate. The Committee
Swiss National Bank judges that the level of the federal funds rate consistent
with maximum employment and price stability over the
4. The Committee directs the Selected Bank to hold longer run has declined relative to its historical average.
and to invest foreign currencies in the portfolio in ac- Therefore, the federal funds rate is likely to be con-
cordance with the provisions of paragraph 7 of the Au- strained by its effective lower bound more frequently
Minutes of the Meeting of January 26–27, 2021 Page 9

than in the past. Owing in part to the proximity of in- stances in which the Committee judges that the objec-
terest rates to the effective lower bound, the Committee tives are not complementary, it takes into account the
judges that downward risks to employment and inflation employment shortfalls and inflation deviations and the
have increased. The Committee is prepared to use its potentially different time horizons over which employ-
full range of tools to achieve its maximum employment ment and inflation are projected to return to levels
and price stability goals. judged consistent with its mandate.
The maximum level of employment is a broad-based The Committee intends to review these principles and
and inclusive goal that is not directly measurable and to make adjustments as appropriate at its annual organi-
changes over time owing largely to nonmonetary factors zational meeting each January, and to undertake roughly
that affect the structure and dynamics of the labor mar- every 5 years a thorough public review of its monetary
ket. Consequently, it would not be appropriate to spec- policy strategy, tools, and communication practices.
ify a fixed goal for employment; rather, the Committee’s
Developments in Financial Markets and Open
policy decisions must be informed by assessments of the
Market Operations
shortfalls of employment from its maximum level, rec-
The manager turned first to a discussion of financial
ognizing that such assessments are necessarily uncertain
market developments. The evolving outlooks for the
and subject to revision. The Committee considers a
path of the virus and for fiscal policy were the main driv-
wide range of indicators in making these assessments.
ers of financial markets over the intermeeting period.
The inflation rate over the longer run is primarily de-
Progress on vaccinations had been slower than expected,
termined by monetary policy, and hence the Committee
and the near-term trajectory of the pandemic worsened,
has the ability to specify a longer-run goal for inflation.
weighing on economic activity. However, even with the
The Committee reaffirms its judgment that inflation at
appearance of new strains of the virus, market confi-
the rate of 2 percent, as measured by the annual change
dence in the ultimate efficacy of the vaccination efforts
in the price index for personal consumption expendi-
seemed to remain high. The emergence of a narrow
tures, is most consistent over the longer run with the
Democratic majority in the Senate bolstered investor ex-
Federal Reserve’s statutory mandate. The Committee
pectations for additional fiscal stimulus, prompting up-
judges that longer-term inflation expectations that are
ward revisions to forecasts for economic growth this
well anchored at 2 percent foster price stability and mod-
year. In the Open Market Desk Survey of Primary Deal-
erate long-term interest rates and enhance the Commit-
ers, the median 2021 gross domestic product (GDP)
tee’s ability to promote maximum employment in the
growth forecast rose about 1 percentage point.
face of significant economic disturbances. In order to
anchor longer-term inflation expectations at this level, Against this backdrop, longer-term Treasury yields rose
the Committee seeks to achieve inflation that averages notably over the period. Longer-dated real yields were
2 percent over time, and therefore judges that, following lifted by expectations for improved growth and in-
periods when inflation has been running persistently be- creased Treasury issuance, but remained deeply negative.
low 2 percent, appropriate monetary policy will likely Measures of inflation compensation increased over the
aim to achieve inflation moderately above 2 percent for period, with the five-year, five-year-forward measure ris-
some time. ing to a level of around 2 percent. Overall financial con-
Monetary policy actions tend to influence economic ditions eased further, on net, as the recent rally in risk
activity, employment, and prices with a lag. In setting assets continued. Gains in U.S. equities again centered
monetary policy, the Committee seeks over time to mit- on cyclical sectors and smaller-capitalization firms most
igate shortfalls of employment from the Committee’s as- sensitive to growth. Credit spreads narrowed further,
sessment of its maximum level and deviations of infla- especially for riskier borrowers.
tion from its longer-run goal. Moreover, sustainably
Expectations for the path of the target federal funds rate
achieving maximum employment and price stability de-
over the next several years, as implied by interest rate
pends on a stable financial system. Therefore, the Com-
futures and by the Desk Survey of Primary Dealers and
mittee’s policy decisions reflect its longer-run goals, its
Survey of Market Participants, were relatively little
medium-term outlook, and its assessments of the bal-
changed from December. The stability in near-term pol-
ance of risks, including risks to the financial system that
icy rate expectations amid an improving growth outlook
could impede the attainment of the Committee’s goals.
appeared consistent with the Committee’s new frame-
The Committee’s employment and inflation objectives
work and forward interest rate guidance. Although the
are generally complementary. However, under circum-
median Desk survey respondent continued to expect
Page 10 Federal Open Market Committee

12-month personal consumption expenditure (PCE) in- the fourth quarter of 2020, albeit at a pace that was mark-
flation of 2.3 percent when the FOMC first lifts the tar- edly slower than the rapid rate seen in the third quarter,
get range, the median expectation for the unemployment while the level of real GDP had not yet returned to the
rate prevailing at that time was modestly lower than in level seen before the onset of the pandemic. Labor mar-
December. The Desk survey results indicated that a ma- ket conditions deteriorated, on balance, in December,
jority of market participants anticipated that the pace of and employment continued to be well below its level at
net asset purchases would remain stable for the remain- the start of 2020. Consumer price inflation through No-
der of the year and slow around the first quarter of 2022. vember—as measured by the 12-month percentage
change in the PCE price index—remained considerably
The manager next discussed conditions in funding mar-
lower than the rates seen in early 2020.
kets. Over the year-end, overnight secured and unse-
cured rates were little changed at rates just below the in- Total nonfarm payroll employment fell in December,
terest on excess reserves (IOER) rate even as financial with especially sharp declines in the leisure and hospital-
firms managed their balance sheets for the reporting ity sector. As of December, payroll employment had re-
date. Going forward, reserves were projected to rise rap- traced a little more than half of the losses seen at the
idly through the summer, reflecting ongoing Federal Re- onset of the pandemic. The unemployment rate held
serve asset purchases as well as expected declines in bal- steady at 6.7 percent in December. The unemployment
ances held in the Treasury General Account. Market rate for African Americans declined and the Hispanic
pricing suggested that the effective federal funds rate unemployment rate rose; both rates remained well above
was expected to decline modestly through the second the national average. However, the Asian unemploy-
quarter. Even if more notable downward pressure on ment rate moved below the national average in Decem-
money market rates emerged, the manager anticipated ber. Both the labor force participation rate and employ-
that the Federal Reserve’s tools, including the IOER rate ment-to-population ratio were unchanged in December.
and overnight reverse repurchase agreement facility, Initial claims for unemployment insurance in mid-Janu-
would continue to provide effective control over the ary were higher than their early December level. Weekly
federal funds rate and other overnight money market estimates of private-sector payrolls constructed by Fed-
rates. eral Reserve Board staff using data provided by the pay-
roll processor ADP indicated that the four-week average
Finally, the manager discussed Desk operations. A range
change in private employment in mid-January was
of indicators suggested that both fixed-income and
slightly lower than it had been in early December; how-
funding markets continued to function smoothly over
ever, the most recent week-to-week changes in this
the period. The manager noted that, in the coming pe-
measure of payrolls had been highly volatile.
riod, the Desk anticipated implementing two adjust-
ments to continue to normalize operations. First, given Average hourly earnings for all employees rose 5.1 per-
the sustained stability in term repurchase markets, the cent over the 12 months ending in December, a gain that
Desk proposed discontinuing the weekly one-month was noticeably higher than the measure’s year-earlier
term repurchase operations, beginning in mid-February. 12-month change. The 12-month change in average
In addition, the Desk planned to reduce the frequency hourly earnings continued to be dominated by changes
of agency commercial mortgage-backed securities in the composition of the workforce, with the concen-
(CMBS) operations in light of the sustained improve- tration of job losses among lower-wage workers over the
ment in market conditions for these securities. pandemic period resulting in outsized increases in this
measure of earnings that were not indicative of tight la-
By unanimous vote, the Committee ratified the Desk’s
bor market conditions. By contrast, a staff measure of
domestic transactions over the intermeeting period. No
the 12-month change in the median wage derived from
intervention operations occurred in foreign currencies
the ADP data—a measure likely to have been less af-
for the System’s account during the intermeeting period.
fected by changes in workforce composition—was
Staff Review of the Economic Situation 3½ percent in December and remained well below its
The COVID-19 pandemic and the measures undertaken pre-pandemic pace.
to contain its spread continued to affect economic activ-
Total PCE price inflation was 1.1 percent over the
ity in the United States and abroad. The information
12 months ending in November and continued to be
available at the time of the January 26–27 meeting sug-
held down by relatively weak aggregate demand and the
gested that U.S. real GDP had continued to advance in
declines in consumer energy prices seen over the first
Minutes of the Meeting of January 26–27, 2021 Page 11

part of 2020. Core PCE price inflation, which excludes than in the third quarter. Available data suggested that
changes in consumer energy prices and many consumer real federal purchases had posted a modest gain, as an
food prices, was 1.4 percent over the 12 months ending increase in defense purchases offset a reduction in non-
in November, while the trimmed mean measure of defense purchases; however, indicators of real state and
12-month PCE inflation constructed by the Federal Re- local purchases, including state and local government
serve Bank of Dallas was 1.7 percent in November. In employment, pointed to a fourth-quarter decline similar
December, the 12-month change in the consumer price in size to what had been seen in the third quarter.
index (CPI) was 1.4 percent, while core CPI inflation
The nominal U.S. international trade deficit widened fur-
was 1.6 percent over the same period. The latest read-
ther in November. Both imports and exports continued
ings on survey-based measures of longer-run inflation
to rebound from their collapse in the first half of the
expectations ticked higher. In the first part of January,
year. Goods imports rose in November to a level well
the University of Michigan Surveys of Consumers meas-
above that of the previous January, with gains in most
ure for the next 5 to 10 years moved back up to its
major categories. Although exports also grew in No-
late-summer level, while in December, the 3-year-ahead
vember, they had not yet recovered to their January 2020
measure of inflation expectations produced by the Fed-
level. Services trade continued a gradual rise but re-
eral Reserve Bank of New York moved back up to its
mained depressed, driven by the continued suspension
August level.
of most international travel. Taken together, these data
Real PCE fell in November, and available indicators— suggested that net exports made a significant negative
including the components of the nominal retail sales data contribution to real GDP growth in the fourth quarter.
used to estimate PCE—pointed to a further decline in
Recent data pointed to a sharp slowing in foreign eco-
December. Housing starts and construction permits
nomic growth in the fourth quarter, after a strong re-
moved up in November and December and finished the
bound in the third quarter. Amid a further intensifica-
year well above their pre-pandemic levels. Although
tion of the pandemic, many foreign governments tight-
home sales turned down in November, the decline ap-
ened social-distancing restrictions. In a few countries,
peared to reflect limited availability of homes for sale ra-
the emergence of new and more contagious virus strains
ther than weakening demand.
was accompanied by a surge in COVID-19 cases and
Available indicators pointed to a strong increase in in- deaths. The increased virus spread and restrictions ap-
vestment in equipment and intangibles in the fourth peared to take a toll on foreign economic activity, par-
quarter of 2020, as this component of capital spending ticularly in Europe. The global slowdown was most no-
recovered from its sharp decline over the first half of the table for services, with further declines in purchasing
year. Likewise, drilling investment appeared to have managers indexes for this sector through January in
turned up sharply, albeit from a low level, as oil prices many advanced foreign economies. By contrast, manu-
moved higher. By contrast, investment in nonresidential facturing output in both advanced and emerging foreign
structures outside of the drilling and mining sector ap- economies continued to expand at a solid pace, sup-
peared to have declined further in the fourth quarter and ported by resilient demand for durable goods, high-tech
had likely been restrained by firms’ continued hesitation goods, and medical supplies. Amid the generally weak
to commit to projects with lengthy times to completion economic situation, inflationary pressures remained sub-
and uncertain future returns. dued in most foreign economies.
Industrial production advanced further in the fourth Staff Review of the Financial Situation
quarter, led by a solid gain in manufacturing output, but Investor sentiment improved and risk asset prices
had not yet overtaken its pre-pandemic level. The low moved higher over the intermeeting period on greater
level of export demand since the onset of the pandemic prospects for additional fiscal stimulus. Domestic and
had likely continued to restrain the recovery in the man- foreign equity prices increased notably, and spreads on
ufacturing sector; in addition, production of motor ve- corporate and municipal bonds narrowed. The nominal
hicles and parts was a small drag on manufacturing out- Treasury yield curve steepened, partly reflecting an in-
put in the fourth quarter as automotive producers ap- crease in inflation compensation. Market-based financ-
peared to have had difficulty getting assemblies fully un- ing conditions remained accommodative, while bank
der way for the new model year. lending conditions continued to be tight. However, a
smaller net share of banks tightened lending standards
Total real government purchases appeared to have fallen
than in previous quarters.
further in the fourth quarter, though at a slower pace
Page 12 Federal Open Market Committee

A straight read of overnight index swap (OIS) quotes of government money market funds (MMFs) remained
suggested that the expected path of the federal funds stable over the intermeeting period. AUM of prime
rate beyond mid-2023 rose moderately over the inter- MMFs continued to decline, reaching the lowest level
meeting period, with the increases reportedly associated since late 2018, likely reflecting the compressed net yield
largely with greater investor optimism regarding the ex- advantage for prime funds relative to yields for govern-
pected speed of the economic recovery. OIS quotes ment funds. The net yields of both prime and govern-
suggested that the expected policy rate would remain be- ment MMFs remained near historically low levels.
low 25 basis points until the third quarter of 2023, little
The effective federal funds rate and the Secured Over-
changed from the time of the December meeting.
night Financing Rate were little changed, averaging 9 ba-
The yield on 2-year nominal Treasury securities was little sis points and 8 basis points, respectively, over the inter-
changed over the intermeeting period, while the 10-year meeting period. There continued to be no participation
yield rose notably. Most of the steepening of the Treas- in the Fed’s repurchase agreement (repo) operations,
ury yield curve occurred following the outcome of the and participation in the Fed’s reverse repo facility was
Georgia runoff elections, which reportedly bolstered minimal.
market participants’ expectations for additional fiscal
In foreign financial markets, the prospect of additional
stimulus. The FOMC’s updated guidance around asset
U.S. fiscal stimulus and the passage of key risk events
purchases was seen as broadly in line with expectations
such as the Brexit trade agreement largely outweighed
and did not elicit noticeable financial market reaction.
investor concerns around new virus strains and the slug-
Measures of inflation compensation based on Treasury
gish global vaccine rollout. On balance, foreign equity
Inflation-Protected Securities increased moderately, on
prices increased moderately, with notable outperfor-
net, continuing the upward trend observed over recent
mance in some Asian indexes, and capital inflows into
months, with the increase over the intermeeting period
mutual funds dedicated to emerging markets continued
reportedly reflecting greater prospects for additional fis-
at a robust pace. Longer-term sovereign yields in most
cal stimulus and an associated improvement in the
advanced foreign economies rose slightly on improved
longer-run economic outlook.
investor sentiment even while several major central
Broad stock price indexes increased, on net, over the in- banks reaffirmed their commitment to continue or pos-
termeeting period, boosted by gains in the share prices sibly expand accommodative policies. The broad dollar
of banks and companies in more cyclically sensitive sec- index was little changed, on net, over the intermeeting
tors, reportedly reflecting, in part, increased expectations period, while the Chinese renminbi appreciated notably
of fiscal stimulus. One-month option-implied volatility against the dollar as data showed a robust economic re-
on the S&P 500—the VIX—was little changed, on net, covery in China. Dollar funding conditions were gener-
remaining modestly elevated relative to its range over the ally stable around year-end.
past several years. Consistent with the optimism driving
Financing conditions in capital markets remained
stock prices, spreads on corporate bond yields over
broadly accommodative, supported by low interest rates
comparable-maturity Treasury yields narrowed some-
and high equity valuations. Gross corporate bond issu-
what. Spreads on municipal bond yields narrowed nota-
ance was fairly strong in November and December, and
bly in January, reportedly reflecting increased expecta-
seasoned and initial public offerings in the equity mar-
tions of additional fiscal stimulus and aid to state and
kets were robust. Gross institutional leveraged loan is-
local governments.
suance was also strong in December, as issuance vol-
Conditions in short-term funding markets remained sta- umes excluding refinancing topped their averages for
ble over the intermeeting period, including over the year- previous months of 2020 and were above those ob-
end. Spreads for commercial paper and negotiable cer- served during the same period of 2019.
tificates of deposit across tenors were largely unchanged
Commercial and industrial (C&I) loan balances at banks
at historically low levels. Commercial paper outstanding
continued to decline in December, albeit at a slower pace
declined somewhat in late December but quickly re-
than in the fall. C&I loans declined in the fourth quarter
bounded in early January to the levels observed before
because of weak origination activity, loan forgiveness at
year-end. Amid stable market conditions, there was no
the Paycheck Protection Program, and continued repay-
take-up at the Commercial Paper Funding Facility or the
ments of bank debt. In the January Senior Loan Officer
Money Market Mutual Fund Liquidity Facility over the
Opinion Survey on Bank Lending Practices (SLOOS),
intermeeting period. Assets under management (AUM)
banks, on net, reported weaker demand and tightened
Minutes of the Meeting of January 26–27, 2021 Page 13

lending standards for C&I loans, with notable differ- rowers seeking conforming mortgages but tightened fur-
ences in reported changes across bank sizes. Large ther, from already tight levels, for borrowers with lower
banks reported having eased standards to large and mid- credit scores and those seeking nonconforming mort-
dle-market firms, while, on net, banks of all sizes re- gages. The January SLOOS suggested that for most
ported having tightened standards to small firms. How- types of residential mortgages, banks’ lending standards
ever, a smaller net percentage of banks tightened lending remained unchanged, while loan demand was either little
standards to firms of all sizes than in previous quarters. changed or somewhat stronger. Mortgage forbearance
rates plateaued in December and early January after hav-
The credit quality of nonfinancial corporations remained
ing gradually declined over the previous six months, and
stable in recent months after deteriorating substantially
the rate of new delinquencies stayed at low, pre-pan-
for several months following the onset of the pandemic.
demic levels.
The volume of nonfinancial corporate bond downgrades
continued to slightly outpace upgrades in November and Financing conditions in consumer credit markets gener-
December, and the monthly volume of nonfinancial cor- ally remained accommodative for borrowers with strong
porate bond defaults remained relatively low. Market in- credit scores but tight for those with subprime scores.
dicators of future default expectations moved slightly Banks in the January SLOOS reported easing standards
lower, essentially returning to their pre-pandemic levels. for all consumer loan types and experiencing weaker de-
mand for auto loans and little-changed demand for other
Financing conditions for small businesses remained
consumer loans. Conditions in the asset-backed securi-
tight, but small business loan originations in November,
ties market appeared supportive of lending. Credit card
the most recent month for which data were available,
balances edged down further for both prime and
were at roughly the level seen a year earlier, likely sup-
nonprime borrowers, likely reflecting weak consumer
ported by the refinancing of existing loans. Meanwhile,
spending. However, the volume of new cards and avail-
liquidity needs of small businesses remained high as
able credit continued to rise for both prime and
businesses continued to operate at reduced capacity.
nonprime borrowers. Interest rates on new credit card
Small business delinquency and default rates were little
offers for nonprime borrowers stayed elevated, and fi-
changed but remained elevated relative to the levels of
nancing conditions remained tight for those borrowers.
recent years. Financing conditions in the municipal
Auto loan balances continued to increase solidly for
bond market remained generally accommodative over
prime and near-prime borrowers but declined further for
the intermeeting period, and the credit quality of munic-
subprime borrowers. Auto loan interest rates were
ipal debt remained roughly stable.
about flat over the past few months and remained sig-
For commercial real estate (CRE) financed through cap- nificantly below their pre-pandemic levels. Delinquency
ital markets, financing conditions remained generally ac- rates for nonprime auto and credit card borrowers ticked
commodative, easing further over the intermeeting pe- up, albeit from very low levels.
riod. Spreads on agency CMBS ticked down, on net, and
The staff provided an update on its assessments of the
issuance remained elevated through December, al-
stability of the financial system and, on balance, charac-
though below its recent historical high in October. Risk
terized the financial vulnerabilities of the U.S. financial
spreads on triple-B non-agency CMBS declined, and
system as notable. The staff assessed asset valuation
spreads on triple-A non-agency CMBS stayed close to
pressures as elevated. In particular, corporate bond
their historical lows. Issuance of non-agency CMBS re-
spreads had declined to pre-pandemic levels, which were
mained somewhat below its pre-pandemic level. CRE
at the lower ends of their historical distributions. In ad-
bank loan growth remained weak in the fourth quarter
dition, measures of the equity risk premium declined fur-
amid depressed property transaction volumes. On net,
ther, returning to pre-pandemic levels. Prices for indus-
in the January SLOOS, banks reported a further tighten-
trial and multifamily properties continued to grow
ing of lending standards and further weakening in de-
through 2020 at about the same pace as in the past sev-
mand for CRE loans.
eral years, while prices of office buildings and retail es-
Financing conditions in the residential mortgage market tablishments started to fall. The staff assessed vulnera-
were little changed over the intermeeting period. Mort- bilities associated with household and business borrow-
gage rates ticked up slightly but stayed near historically ing as notable, reflecting increased leverage and de-
low levels, supporting strong loan origination activity. creased incomes and revenues in 2020. Small businesses
Credit remained broadly available to higher-score bor- were hit particularly hard. The staff judged that vulner-
Page 14 Federal Open Market Committee

abilities stemming from financial leverage were moder- as a modest upside risk to the baseline economic out-
ate, noting that capital ratios at the largest bank holding look. However, the further rise in COVID-19 cases in
companies rose over the course of last year; leverage the United States, coupled with developments such as
among hedge funds was elevated but it did decline last the emergence of more-contagious strains of the virus in
spring for the most highly leveraged funds. The staff the United States and elsewhere, led the staff to continue
characterized vulnerabilities stemming from funding to judge that the risks to the baseline projection were
risks as moderate. Banks continued to maintain signifi- skewed to the downside and that the uncertainty around
cant levels of high-quality liquid assets and stable sources the forecast was elevated.
of funding. In contrast, money market funds and open-
Participants’ Views on Current Conditions and the
ended mutual funds were characterized by significant
Economic Outlook
vulnerabilities associated with liquidity transformation.
Participants noted that the COVID-19 pandemic was
Staff Economic Outlook causing tremendous human and economic hardship
The U.S. economic projection prepared by the staff for across the United States and around the world. The pace
the January FOMC meeting implied a considerably of the recovery in economic activity and employment
stronger outlook for activity in 2021 relative to the De- had moderated in recent months, with weakness concen-
cember forecast. Although incoming data had been trated in the sectors of the economy most adversely af-
weaker than expected, the staff’s January projection in- fected by the resurgence of the virus and by greater so-
corporated the effects of the stimulus in the recently en- cial distancing. Weaker demand and earlier declines in
acted Consolidated Appropriations Act, 2021 (CAA), to- oil prices were holding down consumer price inflation.
gether with an assumption that an additional sizable Overall financial conditions remained accommodative,
tranche of fiscal support would be put into place in com- in part reflecting the Federal Reserve’s actions to sup-
ing months. Taken together, these stimulus measures port the economy and the flow of credit to U.S. house-
were expected to partly offset the substantial drag on ag- holds and businesses. Participants agreed that the path
gregate demand that would result from the unwinding of of the economy would depend significantly on the
the fiscal stimulus enacted in the spring of 2020. The course of the virus, including progress on vaccinations,
staff’s projection continued to anticipate that widespread and that the ongoing public health crisis would continue
vaccination would allow for an easing in social distanc- to weigh on economic activity, employment, and infla-
ing in 2021. With the boost to growth from the reduc- tion and posed considerable risks to the economic out-
tion in social distancing assumed to be largely completed look.
by the end of 2021, GDP growth was expected to step
Participants observed that the resurgence in COVID-19
down over the remainder of the medium term. Even so,
infections and associated social-distancing measures
the staff continued to project that real GDP growth
were restraining activity in some sectors, particularly in
would outpace that of potential over this period, leading
industries such as travel and leisure and hospitality.
to a considerable further decline in the unemployment
Most participants expected that the stimulus provided by
the passage of the CAA in December, the likelihood of
The 12-month changes in total and core PCE prices in additional fiscal support, and anticipated continued pro-
coming months were projected to briefly move above gress in vaccinations would lead to a sizable boost in
2 percent in the second quarter of 2021 as the unusually economic activity. Even so, participants noted that eco-
low observations from the spring of 2020 drop out of nomic activity and employment were currently well be-
the 12-month calculation. Following these swings, infla- low levels consistent with achieving maximum employ-
tion was expected to finish the year at just below 2 per- ment.
cent. Thereafter, inflation was projected to gradually
Participants commented on improved prospects for
edge up to 2 percent by the end of the medium term as
household spending over the course of the year, in part
labor and product markets tightened. With monetary
reflecting fiscal support. They saw progress on vaccina-
policy assumed to remain accommodative, inflation was
tions as essential for supporting further gains in aggre-
projected to moderately overshoot 2 percent for some
gate consumer spending and for the economic recovery
time in the years beyond 2023.
more generally. In commenting on recent data for
The staff viewed the possibility that a larger-than-antici- household spending, most participants discussed the
pated fiscal package would be enacted in coming months composition of expenditures, with strong spending on
Minutes of the Meeting of January 26–27, 2021 Page 15

many goods, especially durables, and weakness in spend- gains in many industries were outweighed by significant
ing on some services, especially in travel and in leisure layoffs in industries where the resurgence of the virus
and hospitality. The relative strength in consumer had weighed heavily on activity. While labor market
spending on goods was supported by fiscal programs conditions had improved significantly, on balance, since
such as federal stimulus payments and expanded unem- the spring, some participants noted that if the sizable
ployment benefits as well as by accommodative mone- number of workers who reported having left the labor
tary policy. The weakness in services spending was force since the beginning of the pandemic were to be
largely attributed to the pandemic and associated social- counted as unemployed, the unemployment rate would
distancing measures, which limited spending on services be substantially higher. Participants judged that the cur-
that depend heavily on in-person contact. Increased rent low level of labor force participation likely reflected
government transfers to households, combined with re- a number of factors, including health concerns and ad-
duced outlays on some services, had contributed to a his- ditional childcare responsibilities. Over the medium
torically large increase in aggregate household savings term, participants expected strong growth in employ-
last year. Participants also observed that residential in- ment, driven by continued progress on vaccinations and
vestment and home sales remained robust; low interest an associated rebound of economic activity and of con-
rates were viewed as an important factor supporting the sumer and business confidence, as well as accommoda-
strength in housing activity. tive fiscal and monetary policy. However, participants
observed that the economy was far from achieving the
Most participants noted that the economic downturn
Committee’s broad-based and inclusive goal of maxi-
had not fallen equally on all Americans and that those
mum employment and that even with a brisk pace of im-
least able to shoulder the burden—in particular, lower-
provement in the labor market, achieving this goal
income and Black and Hispanic households—had been
would take some time.
the hardest hit by the pandemic. Many participants
stressed that sustained support from fiscal policy would In their comments about inflation, participants noted
help address the hardships faced by these groups and that headline PCE price inflation in December, meas-
that monetary policy could also help by promoting the ured on a 12-month basis, was poised to come in well
economy’s return to maximum employment and price below the Committee’s 2 percent longer-term objective.
stability. In the relatively near term, a number of participants sug-
gested that there could be increases in the prices of some
In their remarks on the business sector, participants
goods whose production has been subject to supply
commented that business equipment investment had
chain constraints, or soon could be; others anticipated
continued to show strength while nonresidential con-
that a possibly abrupt return to normal levels of activity
struction remained weak. Participants also discussed the
could result in one-time increases in certain prices.
recent strong performance of the manufacturing sector.
Many participants stressed the importance of distin-
Many discussed supply chain issues in manufacturing, in-
guishing between such one-time changes in relative
cluding those associated with acquiring material inputs
prices and changes in the underlying trend for inflation,
and pandemic-related worker shortages and absentee-
noting that changes in relative prices could temporarily
ism. Business contacts reported that firms in goods-pro-
raise measured inflation but would be unlikely to have a
ducing industries, particularly larger firms and those in
lasting effect. Some participants further observed that
the durable goods or housing sectors, were adapting to
12-month PCE inflation was likely to move somewhat
the pandemic; in contrast, smaller firms and those in in-
above 2 percent for a brief period in the spring as the
dustries most adversely affected by the pandemic were
unusually low monthly observations from last spring roll
finding it more difficult to adapt. Many participants
out of the 12-month calculation. Outside of such near-
stated that their business contacts were optimistic that
term fluctuations, participants generally anticipated that
continued progress on vaccinations, together with fur-
inflation would move up along a trajectory consistent
ther fiscal support, would result in more improvement
with achieving the Committee’s objectives over time,
in overall business conditions. Several participants
supported by stronger economic activity, widespread
noted the increase in agricultural crop prices over 2020
vaccinations and the associated reduction in social dis-
and the associated improvement in farm revenues.
tancing, and accommodative fiscal and monetary policy.
As with overall economic activity, the pace of improve- Some participants pointed to the continued increase in
ment in the labor market had slowed in recent months. market-based measures of inflation compensation from
Payroll employment fell in December, as continued job the very low levels recorded in the spring as consistent
Page 16 Federal Open Market Committee

with the view that inflation was likely to move up grad- That said, a few participants stated that it would be im-
ually over time; others noted that survey-based measures portant to stay vigilant to ensure that the banking system
were little changed, on net, over the year as a whole. remained strong and resilient. In addition, several par-
ticipants noted that the pandemic had highlighted struc-
Participants noted that overall financial conditions re-
tural vulnerabilities in other parts of the financial system.
mained highly accommodative, in part reflecting inves-
These included run-prone investment funds in short-
tors’ optimism about the economic outlook along with
term funding and credit markets as well as fragilities in
the accommodative stance of monetary policy and re-
Treasury market functioning; stresses stemming from
cent and expected future fiscal policy measures. How-
these vulnerabilities had required substantial interven-
ever, a few participants remarked that credit conditions
tion by the Federal Reserve in the turbulent market con-
were relatively tight for borrowers with low credit scores
ditions at the onset of the pandemic. A couple of par-
and for some small and medium-sized businesses that
ticipants commented that it would be important for the
rely on bank lending rather than capital markets to meet
appropriate regulatory bodies to address these financial
their financing needs.
stability vulnerabilities. Regarding asset valuations,
While generally acknowledging that the medium-term some participants commented that equity valuations had
outlook for real GDP growth and employment had im- risen further, that initial public offering activity was ele-
proved, participants continued to see the uncertainty vated, or that valuations might have been affected by re-
surrounding that outlook as elevated. Participants tail investors trading through electronic platforms. In
agreed that the path of the economy depended signifi- addition, risk spreads on corporate bonds and loans
cantly on the course of the virus and progress on vac- were generally low, even with corporate indebtedness
cinations. Many participants remarked that the pan- having risen to high levels. A few participants noted that
demic continued to pose considerable risks to the eco- some CRE in sectors that had been most directly af-
nomic outlook, including risks associated with new virus fected by the pandemic—such as those involving retail
strains, potential public resistance to vaccination, and establishments and hotels—faced the prospect of falling
potential difficulties in the production and distribution prices and increased stress.
of vaccines. With regard to upside risks, some partici-
In their consideration of monetary policy at this meeting,
pants pointed to the possibility that fiscal policy could
participants reaffirmed the Federal Reserve’s commit-
turn out to be more expansionary than anticipated, that
ment to using its full range of tools to support the
households could display greater willingness to spend
U.S. economy during this challenging time, thereby pro-
out of accumulated savings than expected, or that wide-
moting the Committee’s statutory goals of maximum
spread vaccinations and easing of social distancing could
employment and price stability. Participants agreed that
result in a more rapid boost to spending and employ-
the path of the economy would depend significantly on
ment than anticipated. Participants generally viewed the
the course of the virus, including progress on vaccina-
risks to the outlook for inflation as having become more
tions, and that the ongoing public health crisis had con-
balanced than was the case over most of 2020, although
tinued to weigh on economic activity, employment, and
most still viewed the risks as weighted to the downside.
inflation. Participants noted that as the pandemic had
As an upside risk to inflation, several participants noted
worsened across the country in recent months, the pace
the potential for pandemic-related supply constraints to
of the recovery had moderated, with weakness concen-
affect price inflation somewhat more than anticipated or
trated in the sectors most adversely affected by the pan-
for price increases among industries most adversely af-
demic. In contrast, participants remarked that the pro-
fected by the pandemic to be more pronounced than
spect of an effective vaccine program, the recently en-
acted fiscal support, and the potential for additional fis-
A number of participants commented on issues related cal actions had led them to judge that the medium-term
to financial stability. Several participants noted areas of outlook had improved. That said, participants agreed
strength. For example, the banking system had shown that the economy remained far from the Committee’s
considerable resilience since the onset of the pandemic. longer-run goals and that the path ahead remained highly
Banks’ capital positions had generally remained solid, uncertain, with the pandemic continuing to pose consid-
and earnings were strong. In addition, results from the erable risks to the outlook.
most recent stress tests indicated that the largest banks
In their discussion of the outlook for monetary policy,
could withstand very stressed economic conditions.
participants judged that maintaining a highly accommo-
dative stance of policy was essential to foster further
Minutes of the Meeting of January 26–27, 2021 Page 17

economic recovery and to achieve an average inflation noted that the pace of recovery in economic activity and
rate of 2 percent over time. Participants noted that eco- employment had moderated in recent months, with
nomic conditions were currently far from the Commit- weakness concentrated in sectors most adversely af-
tee’s longer-run goals and that the stance for policy fected by the pandemic. Weaker demand and earlier de-
would need to remain accommodative until those goals clines in oil prices had been holding down consumer
were achieved. Consequently, all participants supported price inflation. Overall financial conditions remained ac-
maintaining the Committee’s current settings and out- commodative, in part reflecting policy measures to sup-
come-based guidance for the federal funds rate and the port the economy and the flow of credit to U.S. house-
pace of asset purchases. holds and businesses. Members also stated that the path
of the economy would depend significantly on the
Participants noted that the Committee’s current guid-
course of the virus, including progress on vaccinations.
ance was well suited to the current environment because
In addition, members agreed that the ongoing public
it describes how policy would respond based on the path
health crisis had continued to weigh on economic activ-
of the economy. For example, if progress toward the
ity, employment, and inflation and was posing consider-
Committee’s goals proved slower than anticipated, the
able risks to the economic outlook.
outcome-based guidance would convey the Committee’s
intention to respond by increasing monetary policy ac- Members agreed that the pandemic continued to pose
commodation through maintaining the current level of considerable risks to the outlook. Nonetheless, in light
the target range of the federal funds rate for longer and of the expected progress on vaccinations and the change
raising the expected path of the Federal Reserve’s bal- in the outlook for fiscal policy, the medium-term pro-
ance sheet. In addition, participants noted that the Com- spects for the economy had improved enough that
mittee’s current outcome-based guidance for both the members decided that the reference in previous post-
federal funds rate and balance sheet appeared to be well meeting statements to risks to the economic outlook
understood by the public. In that context, participants over the medium term was no longer warranted.
emphasized that it was important to abstract from tem-
Members agreed that the Federal Reserve was commit-
porary factors affecting inflation—such as low past lev-
ted to using its full range of tools to support the U.S.
els of prices dropping out of measures of annual price
economy in this challenging time, thereby promoting its
changes or relative price increases in some sectors
maximum-employment and price-stability goals. All
brought about by supply constraints or disruptions—in
members reaffirmed that, in accordance with the Com-
judging whether inflation was on track to moderately ex-
mittee’s goals to achieve maximum employment and in-
ceed 2 percent for some time.
flation at the rate of 2 percent over the longer run and
Participants noted that the increase in the Federal Re- with inflation running persistently below this longer-run
serve’s balance sheet since last March had materially goal, they would aim to achieve inflation moderately
eased financial conditions and was providing substantial above 2 percent for some time so that inflation averages
support to the economy. The Committee’s guidance for 2 percent over time and longer-term inflation expecta-
asset purchases indicated that asset purchases would tions remain well anchored at 2 percent. Members ex-
continue at least at the current pace until substantial fur- pected to maintain an accommodative stance of mone-
ther progress toward its employment and inflation goals tary policy until those outcomes were achieved.
had been achieved. With the economy still far from
All members agreed to maintain the target range for the
those goals, participants judged that it was likely to take
federal funds rate at 0 to ¼ percent, and they expected
some time for substantial further progress to be
that it would be appropriate to maintain this target range
achieved. Various participants noted the importance of
until labor market conditions had reached levels con-
the Committee clearly communicating its assessment of
sistent with the Committee’s assessments of maximum
progress toward its longer-run goals well in advance of
employment and inflation had risen to 2 percent and was
the time when it could be judged substantial enough to
on track to moderately exceed 2 percent for some time.
warrant a change in the pace of purchases.
In addition, members agreed that it would be appropri-
Committee Policy Action
ate for the Federal Reserve to continue to increase its
In their discussion of monetary policy for this meeting,
holdings of Treasury securities by at least $80 billion per
members agreed that the COVID-19 pandemic was
month and agency mortgage-backed securities by at least
causing tremendous human and economic hardship
$40 billion per month until substantial further progress
across the United States and around the world. They
Page 18 Federal Open Market Committee

had been made toward the Committee’s maximum-em- limit of $30 billion per day; the per-coun-
ployment and price-stability goals. They judged that terparty limit can be temporarily increased
these asset purchases would help foster smooth market at the discretion of the Chair.
functioning and accommodative financial conditions,
• Roll over at auction all principal payments
thereby supporting the flow of credit to households and
from the Federal Reserve’s holdings of
Treasury securities and reinvest all princi-
Members agreed that, in assessing the appropriate stance pal payments from the Federal Reserve’s
of monetary policy, they would continue to monitor the holdings of agency debt and agency MBS
implications of incoming information for the economic in agency MBS.
outlook and that they would be prepared to adjust the
stance of monetary policy as appropriate in the event • Allow modest deviations from stated
that risks emerged that could impede the attainment of amounts for purchases and reinvestments,
the Committee’s goals. Members also agreed that, in as- if needed for operational reasons.
sessing the appropriate stance of monetary policy, they • Engage in dollar roll and coupon swap
would take into account a wide range of information, in- transactions as necessary to facilitate set-
cluding readings on public health, labor market condi- tlement of the Federal Reserve’s agency
tions, inflation pressures and inflation expectations, and MBS transactions.”
financial and international developments.
The vote also encompassed approval of the statement
At the conclusion of the discussion, the Committee below for release at 2:00 p.m.:
voted to authorize and direct the Federal Reserve Bank
of New York, until instructed otherwise, to execute “The Federal Reserve is committed to using its
transactions in the SOMA in accordance with the fol- full range of tools to support the U.S. economy
lowing domestic policy directive, for release at 2:00 p.m.: in this challenging time, thereby promoting its
maximum employment and price stability
“Effective January 28, 2021, the Federal Open goals.
Market Committee directs the Desk to:
The COVID-19 pandemic is causing tremen-
• Undertake open market operations as nec- dous human and economic hardship across the
essary to maintain the federal funds rate in United States and around the world. The pace
a target range of 0 to ¼ percent. of the recovery in economic activity and em-
ployment has moderated in recent months,
• Increase the System Open Market Ac-
with weakness concentrated in the sectors
count holdings of Treasury securities by
most adversely affected by the pandemic.
$80 billion per month and of agency mort-
Weaker demand and earlier declines in oil
gage-backed securities (MBS) by $40 bil-
prices have been holding down consumer price
lion per month.
inflation. Overall financial conditions remain
• Increase holdings of Treasury securities accommodative, in part reflecting policy
and agency MBS by additional amounts measures to support the economy and the flow
and purchase agency commercial mort- of credit to U.S. households and businesses.
gage-backed securities (CMBS) as needed
The path of the economy will depend signifi-
to sustain smooth functioning of markets
cantly on the course of the virus, including pro-
for these securities.
gress on vaccinations. The ongoing public
• Conduct repurchase agreement operations health crisis continues to weigh on economic
to support effective policy implementation activity, employment, and inflation, and poses
and the smooth functioning of short-term considerable risks to the economic outlook.
U.S. dollar funding markets. The Committee seeks to achieve maximum
• Conduct overnight reverse repurchase employment and inflation at the rate of 2 per-
agreement operations at an offering rate of cent over the longer run. With inflation run-
0.00 percent and with a per-counterparty ning persistently below this longer-run goal,
the Committee will aim to achieve inflation
moderately above 2 percent for some time so
Minutes of the Meeting of January 26–27, 2021 Page 19

that inflation averages 2 percent over time and information, including readings on public
longer-term inflation expectations remain well health, labor market conditions, inflation pres-
anchored at 2 percent. The Committee ex- sures and inflation expectations, and financial
pects to maintain an accommodative stance of and international developments.”
monetary policy until these outcomes are
Voting for this action: Jerome H. Powell, John C.
achieved. The Committee decided to keep the
Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle
target range for the federal funds rate at 0 to
W. Bowman, Lael Brainard, Richard H. Clarida, Mary C.
¼ percent and expects it will be appropriate to
Daly, Charles L. Evans, Randal K. Quarles, and
maintain this target range until labor market
Christopher J. Waller.
conditions have reached levels consistent with
the Committee’s assessments of maximum em- Voting against this action: None.
ployment and inflation has risen to 2 percent
Consistent with the Committee’s decision to leave the
and is on track to moderately exceed 2 percent
target range for the federal funds rate unchanged, the
for some time. In addition, the Federal Re-
Board of Governors voted unanimously to leave the in-
serve will continue to increase its holdings of
terest rates on required and excess reserve balances at
Treasury securities by at least $80 billion per
0.10 percent. The Board of Governors also voted unan-
month and of agency mortgage-backed securi-
imously to approve establishment of the primary credit
ties by at least $40 billion per month until sub-
rate at the existing level of 0.25 percent, effective Janu-
stantial further progress has been made toward
ary 28, 2021.
the Committee’s maximum employment and
price stability goals. These asset purchases It was agreed that the next meeting of the Committee
help foster smooth market functioning and ac- would be held on Tuesday–Wednesday, March 16–
commodative financial conditions, thereby 17, 2021. The meeting adjourned at 10:25 a.m. on Janu-
supporting the flow of credit to households ary 27, 2021.
and businesses. Notation Vote
In assessing the appropriate stance of mone- By notation vote completed on January 5, 2021, the
tary policy, the Committee will continue to Committee unanimously approved the minutes of the
monitor the implications of incoming infor- Committee meeting held on December 15–16, 2020.
mation for the economic outlook. The Com-
mittee would be prepared to adjust the stance
of monetary policy as appropriate if risks
emerge that could impede the attainment of the _______________________
Committee’s goals. The Committee’s assess- James A. Clouse
ments will take into account a wide range of Secretary