Esther L. George

President George dissented because she believed that an unchanged setting of policy was appropriate based on the incoming data and the outlook for economic activity over the medium term. Recognizing risks to the outlook from the crosscurrents emanating from trade policy uncertainty and weaker global activity, President George would be prepared to adjust policy should incoming data point to a materially weaker outlook for the economy.

Mses. George and Mester dissented because they preferred to increase the target range for the federal funds rate by 25 basis points at this meeting. Ms. George judged that, with the labor market near full employment and inflation approaching the Committee's 2 percent objective, another step in the gradual adjustment of monetary policy was appropriate. While a low level of the target range for the federal funds rate had supported achieving the Committee's objectives, such low levels were no longer warranted and, if maintained, could pose a risk to the sustainability of the economic expansion with stable inflation. In particular, she viewed the supply-side benefits of allowing labor utilization to rise above its neutral level as temporary, and noted that monetary policy was unable to affect the longer-run growth potential of the economy.

Mses. George and Mester and Mr. Rosengren dissented because they preferred to increase the target range for the federal funds rate by 25 basis points at this meeting. Ms. George judged that with the unemployment rate and inflation at or near their longer-run levels, removing some accommodation was warranted and would be consistent with the prescriptions of several frameworks for assessing the appropriate stance of monetary policy. She was concerned that the Committee's recent policy choices had incorporated too much discretion, and her assessment was that by waiting longer to adjust the policy stance and deviating from the appropriate path to policy normalization, the Committee risked eroding the credibility of its policy communications.

Ms. George dissented because she believed that a 25 basis point increase in the target range for the federal funds rate was appropriate at this meeting. Information available since the June FOMC meeting showed solid employment growth, economic growth near its trend, and inflation outcomes aligning with the Committee's objective. Domestic financial conditions had eased since the U.K. referendum. She believed that monetary policy should respond to these developments by gradually removing accommodation, consistent with the prescriptions of several frameworks for assessing the appropriate stance of monetary policy. She believed that by waiting longer to adjust the policy stance and deviating from the appropriate path to policy normalization, the Committee risked eroding the credibility of its policy communications.

Ms. George dissented because she believed that a 25 basis point increase in the target range for the federal funds rate was appropriate at this meeting. Potential downside risks to the economic outlook had diminished since the March FOMC meeting, and the modal outlook was for economic growth, employment, and inflation outcomes consistent with the Committee's statutory objectives. She believed that monetary policy should respond to these developments by gradually removing accommodation and noted that several frameworks for assessing the appropriate stance of monetary policy, such as prescriptions from various policy rules and some estimates of equilibrium interest rates, also suggested that a reduction in monetary policy accommodation would be appropriate.

Ms. George dissented because she believed that a 25 basis point increase in the target range for the federal funds rate was warranted at this meeting. Although risks to the global economy had increased in recent months and financial markets were unusually volatile at times, she believed that monetary policy should focus primarily on progress toward the Committee's longer-run objectives. Recently, labor market conditions had continued to strengthen, with the economy apparently near full employment, and some data had suggested a firming of underlying inflation trends. She believed that monetary policy should respond to these developments by gradually removing accommodation. She noted that, in such circumstances, postponing the removal of accommodation could increase financial distortions and risks to the economy and undermine the achievement of the Committee's longer-run objectives.

Ms. George dissented because she did not see the continued aggressive easing of monetary policy as warranted in the face of both actual and forecasted improvements in the economy. In her view, the cumulative progress in labor markets justified taking steps toward slowing the pace of the Committee's asset purchases. Moreover, market expectations for the size of the purchase program had continued to escalate despite that progress, increasing her concerns about communications challenges and the potential costs associated with asset purchases.

Ms. George dissented because she saw recent information on the economy as sufficiently positive to warrant a reduction in the pace of the Committee's asset purchases at this meeting. In her view, waiting for more evidence of progress discounted the cumulative improvement in the economy as well as the potential costs of ongoing purchases. Accordingly, not only would a reduction be appropriate in light of the ongoing improvement in labor market conditions, but it also would support the credibility and predictability of monetary policy because it would be seen as following through on the Committee's earlier communications about the outlook for the asset purchase program.

Ms. George dissented because she favored including in the policy statement a more explicit signal that the pace of the Committee's asset purchases would be reduced in the near term. She expressed concerns about the open-ended approach to asset purchases and viewed providing such a signal as important at this time, in light of the ongoing improvement in labor market conditions as well as the potential costs and uncertain benefits of large-scale asset purchases.

Ms. George dissented because she viewed the ongoing improvement in labor market conditions and in the outlook as warranting a deliberate statement from the Committee at this meeting that the pace of its asset purchases would be reduced in the very near future. She continued to have concerns about maintaining aggressive monetary stimulus in the face of a growing economy and pointed to the potential for financial imbalances to emerge as a result of the high level of monetary accommodation.

Ms. George dissented because she continued to view monetary policy as overly accommodative and therefore as posing risks to the long-term sustainable growth of the economy. She expressed concern that the stance of policy might be fostering imbalances and excessive risk-taking in some financial markets and institutions, and she cited the potential for the Committee's ongoing asset purchases to complicate the future conduct of policy, raise uncertainty, and affect future inflation expectations. Accordingly, Ms. George preferred to signal a near-term tapering of asset purchases, which would begin to move policy toward a more appropriate stance. Review of Exit Strategy Principles After the policy vote, participants began a review of the exit strategy principles that were published in the minutes of the Committee's June 2011 meeting. Those principles, which the Committee issued to clarify how it intended to normalize the stance and conduct of monetary policy when doing so eventually became appropriate, included broad principles along with some details about the timing and sequence of specific steps the Committee expected to take. The participants' discussion touched on various aspects of the exit strategy principles and policy normalization more generally, including the size and composition of the SOMA portfolio in the longer run, the use of a range of reserve-draining tools, the approach to sales of securities, the eventual framework for policy implementation, and the relationship between the principles and the economic thresholds in the Committee's forward guidance on the federal funds rate. The broad principles adopted almost two years ago appeared generally still valid, but developments since then--including the change in the size and composition of SOMA asset holdings--suggested a need for greater flexibility regarding the details of implementing policy normalization, particularly because those details would appropriately depend at least in part upon future economic and financial developments. Also, because normalization still appeared to be well in the future, the Committee might wish to wait and acquire additional experience to inform its plans. In particular, the process of normalizing policy could yield information about the most effective framework for implementing monetary policy in the longer run, and thus about the appropriate size of the SOMA portfolio and level of reserve balances. In addition, several participants raised the possibility that the federal funds rate might not, in the future, be the best indicator of the general level of short-term interest rates, and supported further staff study of potential alternative approaches to implementing monetary policy in the longer term and of possible new tools to improve control over short-term interest rates. Views differed regarding whether the best course at this point would be to simply acknowledge that certain components of the June 2011 principles had been overtaken by events or rather to formally revise the principles. Acknowledging that the principles need to be updated would help avoid possible confusion regarding the Committee's intentions; waiting to update the principles would allow the Committee to obtain additional information before revising them. It was also mentioned that the public's understanding of the likely exit process might not be improved if the Committee issued only a set of broad principles without providing detailed information on the steps anticipated for normalization. However, issuing revised principles relatively soon could give the public additional confidence that the Committee had the tools and a plan for eventually normalizing the conduct of policy. Moreover, one participant stressed that the Committee's ability to provide forward guidance about the normalization process was a key monetary policy tool, and revised principles would permit use of that tool to help adjust the stance of policy. Participants emphasized that their review of the June 2011 exit strategy principles did not suggest any change in their views about the economic conditions that would eventually warrant beginning the process of normalizing the stance of monetary policy.

Ms. George dissented because she continued to view monetary policy as too accommodative and therefore as posing risks to the achievement of the Committee's economic objectives in the long run. In particular, the current stance of policy could lead to financial imbalances, a mispricing of risk, and, over time, higher long-term inflation expectations. In her view, the Committee's asset purchases were providing relatively small benefits, and, given the risks that they posed as well as the improvement in the outlook for the labor market, she thought they should be wound down.

Ms. George dissented out of concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in inflation expectations. In her view, the potential costs and risks posed by the Committee's asset purchases outweighed their uncertain benefits. Although she noted that monetary policy needed to remain supportive of the economy, Ms. George believed that policy had become too accommodative and that possible unintended side effects of ongoing asset purchases, posing risks to financial stability and complicating future monetary policy, argued against continuing on the Committee's current path. Discussion of Communications Regarding Economic Projections As a follow-up to the FOMC's discussion in October about providing more information on the Committee's collective judgment regarding the economic outlook and appropriate monetary policy, the staff presented several options for enhancing the Summary of Economic Projections (SEP). Most of the options involved displaying the information currently collected from participants in new ways by using different summary statistics or aggregations. In the ensuing discussion, participants expressed a range of views on the advantages and disadvantages of implementing changes to the SEP. For example, they generally judged that the addition of the median of participants' projections could be useful to better illustrate the central outlook of the Committee. Many participants also expressed interest in exploring the potential for using the SEP to convey information about issues related to the Committee's future asset purchases and the Federal Reserve's balance sheet. However, the discussion highlighted the complexity involved in providing this information, in part because participants' quantitative assessments of the likely evolution of the Federal Reserve's asset holdings under appropriate policy may not adequately convey the nature of the conditionality and the broader cost-benefit considerations guiding the Committee's actions in this area. At the end of the discussion, the Chairman asked the subcommittee on communications to explore potential approaches to providing more information about participants' individual views of appropriate balance sheet policy and its conditionality.