December 11 · Published January 2, 2008
Statement·Presser·Minutes
BBBen S. BernankeDecember 11, 2007 FOMC Minutes
Our reading
The minutes read consistent with the statement because both documents reflect the FOMC's decision to lower the federal funds rate by 25 basis points to 4-1/4 percent, citing slowing economic growth due to the housing correction and softening spending, increased strains in financial markets, and ongoing inflation risks, while also acknowledging heightened uncertainty about the outlook.
Our reading compares the minutes of the December 11 FOMC meeting with the FOMC statement issued at the end of that meeting, three weeks before the minutes were published.
Vote
- Ben S. Bernanke
- Rudolph M. Evans
- Timothy F. Geithner
- Thomas M. Hoenig
- Donald L. Kohn
- Randall S. Kroszner
- Frederic S. Mishkin
- William Poole
- Eric S. Rosengren ↓ dissented
- He regarded the weakness in the incoming economic data and in the outlook for the economy as warranting a more aggressive policy response. In his view, the combination of a deteriorating housing sector, slowing consumer and business spending, high energy prices, and ill-functioning financial markets suggested heightened risk of continued economic weakness. In light of that possibility, a more decisive policy response was called for to minimize that risk. In any case, he felt that well-anchored inflation expectations and the Committee's ability to reverse course on policy would limit the inflation risks of a larger easing move, should the economy instead prove significantly stronger than anticipated.
- Kevin Warsh
From the minutes
FOMC minutes
Conference Call On December 6, 2007, in a joint session of the Federal Open Market Committee and the Board of Governors, Board members and Reserve Bank presidents reviewed conditions in domestic and foreign financial markets and discussed two proposals aimed at improving market functioning. The first proposal was for the establishment of a temporary Term Auction Facility (TAF), which would provide term funding to eligible depository institutions through an auction mechanism beginning in mid-December. Meeting participants recognized that a TAF would not address all of the factors giving rise to stresses in money and credit markets, notably the ongoing concerns about credit quality and balance sheet pressures. Nonetheless, most participants viewed the TAF, which would provide liquidity to more counterparties and against a broader range of collateral than used for open market operations, as a potentially useful tool. Some mentioned that a TAF could help alleviate year-end pressures in money markets. A few participants, however, questioned the need for and the likely efficacy of the proposal, expressed concerns about the longer-run incentive effects of a TAF, and felt that the possible drawbacks could well outweigh any benefits.* Participants generally regarded the second proposal, to set up a foreign exchange swap arrangement with the European Central Bank, as a positive step in international cooperation to address elevated pressures in short-term dollar funding markets.
At the conclusion of the discussion, with Mr. Poole dissenting, the Committee voted to direct the Federal Reserve Bank of New York to establish and maintain a reciprocal currency (swap) arrangement for the System Open Market Account with the European Central Bank in an amount not to exceed $20 billion. Within that aggregate limit, draws of up to $10 billion were authorized, and the arrangement itself was authorized for a period of up to 180 days, unless extended by the FOMC. Mr. Poole dissented because he viewed the swap agreement as unnecessary in light of the size of the European Central Bank's dollar-denominated foreign exchange reserves.
Brian F. Madigan Secretary
*Secretary's Note: The Board of Governors approved the TAF via notation vote on December 10, 2007 after the staff finalized its proposal for specifications of the TAF. Return to text
What changed from the previous meeting’s minutes
- The FOMC lowered the target federal funds rate by 25 basis points to 4-1/2 percent at the October meeting.
- The FOMC voted to establish a reciprocal currency swap arrangement with the European Central Bank, authorizing draws up to $10 billion.
- The staff revised down its projection for real GDP growth over the remainder of the forecast period.
- Participants agreed the housing correction was likely to be deeper and more prolonged than previously expected.
- The FOMC approved the minutes of the October 30-31 meeting by notation vote on November 19, 2007.
Summary generated automatically from the two documents.