Stocks Move to Lows Following FOMC Minutes

Several on FOMC Said Fed Should Be Prepared to Vary Pace of QE

Several on FOMC said Fed should be prepared to vary pace of QE.

A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, January 29, 2013, at 2:00 p.m., and continued on Wednesday, January 30, 2013, at 9:00 a.m.

PRESENT:
Ben Bernanke, Chairman
William C. Dudley, Vice Chairman
James Bullard
Elizabeth Duke
Charles L. Evans
Esther L. George
Jerome H. Powell
Sarah Bloom Raskin
Eric Rosengren
Jeremy C. Stein
Daniel K. Tarullo
Janet L. Yellen

Christine Cumming, Richard W. Fisher, Narayana Kocherlakota, Sandra Pianalto, and Charles I. Plosser, Alternate Members of the Federal Open Market Committee

Jeffrey M. Lacker, Dennis P. Lockhart, and John C. Williams, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively

William B. English, Secretary and Economist
Deborah J. Danker, Deputy Secretary
Matthew M. Luecke, Assistant Secretary
David W. Skidmore, Assistant Secretary
Michelle A. Smith, Assistant Secretary
Scott G. Alvarez, General Counsel
Thomas C. Baxter, Deputy General Counsel
Steven B. Kamin, Economist
David W. Wilcox, Economist

Thomas A. Connors, Troy Davig, Michael P. Leahy, James J. McAndrews, Stephen A. Meyer, David Reifschneider, Daniel G. Sullivan, Christopher J. Waller, and William Wascher, Associate Economists

Simon Potter, Manager, System Open Market Account

Nellie Liang,1 Director, Office of Financial Stability Policy and Research, Board of Governors

Jon W. Faust, Special Advisor to the Board, Office of Board Members, Board of Governors

James A. Clouse and William Nelson, Deputy Directors, Division of Monetary Affairs, Board of Governors; Mark E. Van Der Weide, Deputy Director, Division of Banking Supervision and Regulation, Board of Governors

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

Joyce K. Zickler, Senior Adviser, Division of Monetary Affairs, Board of Governors

Eric M. Engen, Thomas Laubach, and David E. Lebow, Associate Directors, Division of Research and Statistics, Board of Governors

Beth Anne Wilson, Deputy Associate Director, Division of International Finance, Board of Governors

Karen M. Pence and Stacey Tevlin, Assistant Directors, Division of Research and Statistics, Board of Governors

Jeremy B. Rudd, Adviser, Division of Research and Statistics, Board of Governors

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

Andrew Figura, Group Manager, Division of Research and Statistics, Board of Governors

John C. Driscoll and Jennifer E. Roush, Senior Economists, Division of Monetary Affairs, Board of Governors; Ruth Judson, Senior Economist, Division of International Finance, Board of Governors

Jonathan D. Rose, Economist, Division of Monetary Affairs, Board of Governors

Sarah G. Green, First Vice President, Federal Reserve Bank of Richmond

David Altig, Jeff Fuhrer, Loretta J. Mester, Glenn D. Rudebusch, and Mark S. Sniderman, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Boston, Philadelphia, San Francisco, and Cleveland, respectively

Ron Feldman and Lorie K. Logan, Senior Vice Presidents, Federal Reserve Banks of Minneapolis and New York, respectively

Evan F. Koenig and Steven M. Friedman, Vice Presidents, Federal Reserve Banks of Dallas and New York, respectively

Matthew D. Raskin, Markets Officer, Federal Reserve Bank of New York

Robert L. Hetzel, Senior Economist, Federal Reserve Bank of Richmond

Annual Organizational Matters2
In the agenda for this meeting, it was reported that advices of the election of the following members and alternate members of the Federal Open Market Committee for a term beginning January 29, 2013, had been received and that these individuals had executed their oaths of office.

The elected members and alternate members were as follows:

William C. Dudley, President of the Federal Reserve Bank of New York, with Christine Cumming, First Vice President of the Federal Reserve Bank of New York, as alternate.

Eric Rosengren, President of the Federal Reserve Bank of Boston, with Charles I. Plosser, President of the Federal Reserve Bank of Philadelphia, as alternate.

Charles L. Evans, President of the Federal Reserve Bank of Chicago, with Sandra Pianalto, President of the Federal Reserve Bank of Cleveland, as alternate.

James Bullard, President of the Federal Reserve Bank of St. Louis, with Richard W. Fisher, President of the Federal Reserve Bank of Dallas, as alternate.

Esther L. George, President of the Federal Reserve Bank of Kansas City, with Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, as alternate.

By unanimous vote, the following officers of the Federal Open Market Committee were selected to serve until the selection of their successors at the first regularly scheduled meeting of the Committee in 2014:

Ben Bernanke Chairman
William C. Dudley Vice Chairman
William B. English Secretary and Economist
Deborah J. Danker Deputy Secretary
Matthew M. Luecke Assistant Secretary
David W. Skidmore Assistant Secretary
Michelle A. Smith Assistant Secretary
Scott G. Alvarez General Counsel
Thomas C. Baxter Deputy General Counsel
Richard M. Ashton Assistant General Counsel
Steven B. Kamin Economist
David W. Wilcox Economist

Thomas A. Connors
Troy Davig
Michael P. Leahy
James J. McAndrews
Stephen A. Meyer
David Reifschneider
Daniel G. Sullivan
Geoffrey Tootell
Christopher J. Waller
William Wascher Associate Economists

By unanimous vote, the Federal Reserve Bank of New York was selected to execute transactions for the System Open Market Account.

By unanimous vote, Simon Potter was selected to serve at the pleasure of the Committee as Manager, System Open Market Account, on the understanding that his selection was subject to being satisfactory to the Federal Reserve Bank of New York.

Secretary's note: Advice subsequently was received that the selection of Mr. Potter as Manager was satisfactory to the Federal Reserve Bank of New York.

By unanimous vote, the Authorization for Domestic Open Market Operations was approved with two amendments. The first broadened the actions that the Open Market Desk may take, at the Chairman's instruction during an intermeeting period, to include transactions to address temporary disruptions of an operational or highly unusual nature in U.S. dollar funding markets. For example, if secured funding rates were to increase to high levels in the wake of a natural disaster, the risk of a broader, more systemic disruption to the functioning of asset markets could result. In this case, the prospect that repurchase operations could potentially alleviate some of the market strains might warrant immediate action. Consistent with Committee practice, the Chairman, if feasible, would consult with the Committee before making any such instruction. The second amendment harmonized the language referring to the Committee's longer-run objectives with that in the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy. The Guidelines for the Conduct of System Open Market Operations in Federal-Agency Issues remained suspended.

AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS
(Amended effective on January 29, 2013)

1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, to the extent necessary to carry out the most recent domestic policy directive adopted at a meeting of the Committee:

A. To buy or sell U.S. government securities, including securities of the Federal Financing Bank, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States in the open market, from or to securities dealers and foreign and international accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices, and, for such Account, to exchange maturing U.S. government and federal agency securities with the Treasury or the individual agencies or to allow them to mature without replacement; and

B. To buy or sell in the open market U.S. government securities, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, for the System Open Market Account under agreements to resell or repurchase such securities or obligations (including such transactions as are commonly referred to as repo and reverse repo transactions) in 65 business days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual counterparties.

2. The Federal Open Market Committee authorizes the Federal Reserve Bank of New York to undertake transactions of the type described in paragraphs 1.A and 1.B from time to time for the purpose of testing operational readiness. The aggregate par value of such transactions of the type described in paragraph 1.A shall not exceed $5 billion per calendar year. The outstanding amount of such transactions of the type described in paragraph 1.B shall not exceed $5 billion at any given time. These transactions shall be conducted with prior notice to the Committee.

3. In order to ensure the effective conduct of open market operations, the Federal Open Market Committee authorizes the Federal Reserve Bank of New York to use agents in agency MBS-related transactions.

4. In order to ensure the effective conduct of open market operations, the Federal Open Market Committee authorizes the Federal Reserve Bank of New York to lend on an overnight basis U.S. government securities and securities that are direct obligations of any agency of the United States, held in the System Open Market Account, to dealers at rates that shall be determined by competitive bidding. The Federal Reserve Bank of New York shall set a minimum lending fee consistent with the objectives of the program and apply reasonable limitations on the total amount of a specific issue that may be auctioned and on the amount of securities that each dealer may borrow. The Federal Reserve Bank of New York may reject bids that could facilitate a dealer's ability to control a single issue as determined solely by the Federal Reserve Bank of New York. The Federal Reserve Bank of New York may lend securities on longer than an overnight basis to accommodate weekend, holiday, and similar trading conventions.

5. In order to ensure the effective conduct of open market operations, while assisting in the provision of short-term investments or other authorized services for foreign and international accounts maintained at the Federal Reserve Bank of New York and accounts maintained at the Federal Reserve Bank of New York as fiscal agent of the United States pursuant to section 15 of the Federal Reserve Act, the Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York:

A. For the System Open Market Account, to sell U.S. government securities and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States to such accounts on the bases set forth in paragraph 1.A under agreements providing for the resale by such accounts of those securities in 65 business days or less on terms comparable to those available on such transactions in the market;

B. For the New York Bank account, when appropriate, to undertake with dealers, subject to the conditions imposed on purchases and sales of securities in paragraph l.B, repurchase agreements in U.S. government securities and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, and to arrange corresponding sale and repurchase agreements between its own account and such foreign, international, and fiscal agency accounts maintained at the Bank; and

C. For the New York Bank account, when appropriate, to buy U.S. government securities and obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States from such foreign and international accounts maintained at the Bank under agreements providing for the repurchase by such accounts of those securities on the same business day.

Transactions undertaken with such accounts under the provisions of this paragraph may provide for a service fee when appropriate.

6. In the execution of the Committee's decision regarding policy during any intermeeting period, the Committee authorizes and directs the Federal Reserve Bank of New York, upon the instruction of the Chairman of the Committee, to (i) adjust somewhat in exceptional circumstances the degree of pressure on reserve positions and hence the intended federal funds rate and to take actions that result in material changes in the composition and size of the assets in the System Open Market Account other than those anticipated by the Committee at its most recent meeting or (ii) undertake transactions of the type described in paragraphs 1.A and 1.B in order to appropriately address temporary disruptions of an operational or highly unusual nature in U.S. dollar funding markets. Any such adjustment as described in clause (i) shall be made in the context of the Committee's discussion and decision at its most recent meeting and the Committee's long-run objectives to foster maximum employment and price stability, and shall be based on economic, financial, and monetary developments during the intermeeting period. Consistent with Committee practice, the Chairman, if feasible, will consult with the Committee before making any instruction under this paragraph.

The Committee voted unanimously to amend the Authorization for Foreign Currency Operations and the Procedural Instructions with Respect to Foreign Currency Operations, and to reaffirm the Foreign Currency Directive in the form shown below. The approval of these documents included approval of the System's warehousing agreement with the U.S. Treasury. The Authorization for Foreign Currency Operations and the Procedural Instructions with Respect to Foreign Currency Operations were amended to include the authority to conduct small-value operations against the full range of foreign transactions that the Desk is authorized to conduct. This change was made to allow for prudent testing of operational readiness, and is similar in purpose to the amendment that the Committee approved in June 2012 to the Authorization for Domestic Open Market Operations.

AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS
(Amended effective on January 29, 2013)

1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, for the System Open Market Account, to the extent necessary to carry out the Committee's foreign currency directive and express authorizations by the Committee pursuant thereto, and in conformity with such procedural instructions as the Committee may issue from time to time:

A. To purchase and sell the following foreign currencies in the form of cable transfers through spot or forward transactions on the open market at home and abroad, including transactions with the U.S. Treasury, with the U.S. Exchange Stabilization Fund established by section 10 of the Gold Reserve Act of 1934, with foreign monetary authorities, with the Bank for International Settlements, and with other international financial institutions:

Australian dollars
Brazilian reais
Canadian dollars
Danish kroner
euro
Japanese yen
Korean won
Mexican pesos
New Zealand dollars
Norwegian kroner
Pounds sterling
Singapore dollars
Swedish kronor
Swiss francs

B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, the foreign currencies listed in paragraph A above.

C. To draw foreign currencies and to permit foreign banks to draw dollars under the reciprocal currency arrangements listed in paragraph 2 below, provided that drawings by either party to any such arrangement shall be fully liquidated within 12 months after any amount outstanding at that time was first drawn, unless the Committee, because of exceptional circumstances, specifically authorizes a delay.

D. To maintain an overall open position in all foreign currencies not exceeding $25.0 billion. For this purpose, the overall open position in all foreign currencies is defined as the sum (disregarding signs) of net positions in individual currencies, excluding changes in... More