History of Federal Open Market Committee actions

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This is a list of historical rate actions by the United States Federal Open Market Committee (FOMC). The FOMC controls the supply of credit to banks and the sale of treasury securities. The Federal Open Market Committee meets every two months during the fiscal year. At scheduled meetings, the FOMC meets and makes any changes it sees as necessary, notably to the federal funds rate and the discount rate. The committee may also take actions with a less firm target, such as an increasing liquidity by the sale of a set amount of Treasury bonds, or affecting the price of currencies both foreign and domestic by selling dollar reserves (such as during the Mexican peso bailout in 1994). Janet Yellen is the current chairperson of the Federal Reserve and the FOMC.

Famous actions[edit]

Operation Twist (1961)[edit]

The Federal Open Market Committee action known as Operation Twist (named for the Twist dance craze of the time[1]) began in 1961. The intent was to flatten the yield curve in order to promote capital inflows and strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. It performs the 'twist' by selling some of the short term debt (with three years or less to maturity) it purchased as part of the quantitative easing policy back into the market and using the money received from this to buy longer term government debt. Although this action was marginally successful in reducing the spread between long-term maturities and short-term maturities, Vincent Reinhart and others have suggested it did not continue for a sufficient period of time to be effective.[2] Despite being considered a failure since a 1966 near-term analysis by Franco Modigliani and Richard Sutch,[2][3] the action has subsequently been reexamined and in a 2011 paper economist Eric Swanson of the Federal Reserve Bank of San Francisco has suggested that "Operation Twist" was more effective than originally thought.[1][3] Swanson suggested similar action as an alternative to quantitative easing by central banks;[1][3] the FOMC did in fact take an analogous action in 2011.[4]

Saturday Night Special (1979)[edit]

Soon after becoming chairman, Paul Volcker's federal reserve increased the Fed Funds rate from 11% to 12% during the weekend (October 6, 1979).[5]

Quantitative Easing 1 (QE1, December 2008 to March 2010)[edit]

"On November 25, 2008, the Federal Reserve announced that it would purchase up to $600 billion in agency mortgage-backed securities (MBS) and agency debt. On December 1, Chairman Bernanke provided further details in a speech. On December 16, the program was formally launched by the FOMC. On March 18, 2009, the FOMC announced that the program would be expanded by an additional $750 billion in purchases of agency MBS and agency debt and $300 billion in purchases of Treasury securities.

Zero Interest Rate Policy (ZIRP) (December 2008 to Present)[edit]

In August 2007, the Federal Open Market Committee's (FOMC) target for the federal funds rate was 5.25 percent. Sixteen months later, with the financial crisis in full swing, the FOMC had lowered the target for the federal funds rate to nearly zero, thereby entering the unfamiliar territory of having to conduct monetary policy with the policy interest rate at its effective lower bound. The unusual severity of the recession and ongoing strains in financial markets made the challenges facing monetary policymakers all the greater.[6]

In the height of the financial crisis in 2008, the Federal Open Market Committee decided to lower overnight interest rates to zero to help with easing of money and credit. Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.[6]

Quantitative Easing 2 (QE2, November 2010 to June 2011 )[edit]

On November 3, 2010, the Fed announced that it would purchase $600 billion of longer dated treasuries, at a rate of $75 billion per month. That program, popularly known as "QE2", concluded in June 2011.

Operation Twist (2011)[edit]

The Federal Open Market Committee concluded its September 21, 2011 Meeting at about 2:15 p.m. EDT by announcing the implementation of Operation Twist. This is a plan to purchase $400 billion of bonds with maturities of 6 to 30 years and to sell bonds with maturities less than 3 years, thereby extending the average maturity of the Fed's own portfolio.[7] This is an attempt to do what Quantitative Easing (QE) tries to do, without printing more money and without expanding the Fed's balance sheet, therefore hopefully avoiding the inflationary pressure associated with QE.[4] This announcement brought a bout of risk aversion in the equity markets and strengthened the US Dollar, whereas QE I had weakened the USD and supported the equity markets. Further, on June 20, 2012 the Federal Open Market Committee announced an extension to the Twist programme by adding additionally $267 billion thereby extending it throughout 2012.

Quantitative Easing 3 (QE3)[edit]

On September 13, 2012, the Federal Reserve announced a third round of quantitative easing (QE3).[8] This new round of quantitative easing provided for an open-ended commitment to purchase $40 billion agency mortgage-backed securities per month until the labor market improves "substantially". Some economists believe that Scott Sumner's blog[9] on nominal income targeting played a role in popularizing the "wonky, once-eccentric policy" of "unlimited QE".[10]

The Federal Open Market Committee voted to expand its quantitative easing program further on December 12, 2012. This round continued to authorize up to $40 billion worth of agency mortgage-backed securities per month and added $45 billion worth of longer-term Treasury securities.[11] The outright Treasury purchases as part of the augmented program continued at a pace comparable to that under "Operation Twist"; however, the Federal Reserve could no longer sell short-dated Treasury securities to buy longer-dated ones since they had insufficient holdings of short-dated Treasuries.

On December 18, 2013 the Federal Reserve Open Market Committee announced they would be tapering back on QE3 at a rate of $ 10 billion at each meeting.[12] The Federal Reserve will end its monthly asset purchases program (QE3) in October 2014, ten months after it began the tapering process.[13]

Historical actions[edit]

Currently, this only shows meetings, both scheduled and unscheduled "emergency" meetings. The FOMC makes a number of other important pronouncements as well such as during testimony to Congress whose effects are harder to quantify.

Red dates are intermeeting actions. Blue signifies tightening, green signifies neutrality, and yellow signifies easing.

FOMC Federal Funds Rate History[14]
Date Fed. Fund Rate Discount Rate Votes Notes
Jun 22, 2011 0.00–0.25% 0.75% X-X Official Statement
Dec 16, 2008 0.00–0.25% 0.50% 10–0 Official Statement See also: ZIRP
Oct 29, 2008 1.00% 1.25% 10–0 Official Statement
Oct 8, 2008 1.50% 1.75% X–X This was an emergency unscheduled meeting in response to a rapidly weakening economy, made in coordination with several other central banks around the world. Official Statement
Apr 30, 2008 2.00% 2.25% 8–2 The FOMC cut rates by 25 basis points. They drew back on their easing bias somewhat by removing "downside risks to growth remain" from its statement, but left no sign of a future pause to the interest rate cuts. Fisher and Plosser dissented, preferring no change. Official Statement
Mar 18, 2008 2.25% 2.50% 8–2 The FOMC made another unusually large cut, slashing 75 basis points off the federal funds rate in response to turmoil in the markets and the collapse of Bear Stearns. Despite some predicting an even larger 100 basis point cut, the markets rallied in response. Fisher and Plosser dissented, preferring a smaller cut. Official Statement
Mar 16, 2008 3.00% 3.25% 10–0 This was an emergency unscheduled meeting in response to the meltdown at Bear Stearns. The FOMC arranged loan securities for JPMorgan Chase and greased a buyout of Bear Stearns to make certain that Bear's debts would be backed. It also provided for the creation of a fund to swap safe Treasury securities for less secure ones held by banks. It lastly shaved the difference between the discount rate and the federal funds rate from 50 basis points to 25. Official Statement
January 30, 2008 3.00% 3.50% 9–1 Fisher dissented, preferring no change. Official Statement
January 22, 2008 3.50% 4.00% 8–1 This was an intermeeting rate cut held in response to the January stock downturn, with the results announced Tuesday morning before the U.S. market opened. Poole dissented, saying that emergency action was not required and could wait for the scheduled meeting. Mishkin was absent. Official Statement
Dec 11, 2007 4.25% 4.75% 9–1 Rosengren dissented, preferring a 50 basis point cut. The markets, disappointed with a 25 basis point cut, fell in response; the Fed issued a statement the day after (December 12) pledging an increased money supply to the markets in conjunction with other central banks. Official Statement 2007-12-11, Official Statement 2007-12-12
Oct 31, 2007 4.50% 5.00% 9–1 Hoenig dissented, preferring no change. Official Statement
Sep 18, 2007 4.75% 5.25% 10–0 Official Statement
Aug 17, 2007 5.25% 5.75% 10–0 The subprime mortgage crisis roiled the markets shortly after the Fed's August 7 meeting, causing the board to release a statement on August 10 saying that they were prepared to act in response to the downturn and had increased liquidity. In an unscheduled meeting on August 17 the Fed "temporarily" reduced the spread between the primary credit rate and the federal funds rate to 50 basis points from the 100-point spread established in January 2002. Official Statement, 2007-08-10, Official Statement, 2007-08-10, Official Statement, 2007-08-17.
Aug 7, 2007 5.25% 6.25% 10–0 Official Statement
Jun 28, 2007 5.25% 6.25% 10–0 Official Statement
May 9, 2007 5.25% 6.25% 10–0 Official Statement
Mar 21, 2007 5.25% 6.25% 10–0 Bies recused herself. Official Statement
January 31, 2007 5.25% 6.25% 11–0 Official Statement
Dec 12, 2006 5.25% 6.25% 10–1 Lacker dissented, preferring a 25 basis point increase. Official Statement
Oct 25, 2006 5.25% 6.25% 10–1 Lacker dissented, preferring a 25 basis point increase. Official Statement
Sep 20, 2006 5.25% 6.25% 10–1 Lacker dissented, preferring a 25 basis point increase. Official Statement
Aug 8, 2006 5.25% 6.25% 9–1 The Fed kept rates stable this meeting; they had raised the rates by 25 basis points for seventeen consecutive meetings prior. Lacker dissented, preferring a 25 basis point increase. Official Statement
Jun 29, 2006 5.25% 6.25% 10–0 Official Statement
May 10, 2006 5.00% 6.00% 10–0 Official Statement
Mar 28, 2006 4.75% 5.75% 11–0 This was Ben Bernanke's first meeting as new Chairman, replacing Alan Greenspan. He continued Greenspan's policy of gradual tightening and pledged increased transparency for the Federal Reserve. Official Statement
January 31, 2006 4.50% 5.50% 10–0 Official Statement
Dec 13, 2005 4.25% 5.25% 10–0 Official Statement
November 1, 2005 4.00% 5.00% 10–0 Official Statement
September 20, 2005 3.75% 4.75% 9–1 Olson dissented, preferring no change. Official Statement
Aug 9, 2005 3.50% 4.50% 9–1 Official Statement
Jun 30, 2005 3.25% 4.25% 11–0 Official Statement
May 3, 2005 3.00% 4.00% 10–0 Official Statement
Mar 22, 2005 2.75% 3.75% 11–0 Official Statement
Feb 2, 2005 2.50% 3.50% 12–0 Official Statement
Dec 14, 2004 2.25% 3.25% 12–0 The FOMC changed their previous policy on the release of the minutes from each meeting. Previously, the minutes were released only after the next meeting had already finished, rendering them only of historical interest; this was changed to be released three weeks after the date of a policy decision. The minutes thus became available for predicting the FOMC's action in the next meeting. Official Statement
Nov 10, 2004 2.00% 3.00% 12–0 Official Statement
Sep 21, 2004 1.75% 2.75% 12–0 Official Statement
Aug 10, 2004 1.50% 2.50% 12–0 Official Statement
Jun 30, 2004 1.25% 2.25% 12–0 Official Statement
May 4, 2004 1.00% 2.00% 12–0 Official Statement
Mar 16, 2004 1.00% 2.00% 12–0 Official Statement
January 28, 2004 1.00% 2.00% 12–0 Official Statement
Dec 9, 2003 1.00% 2.00% 12–0 Official Statement
Oct 28, 2003 1.00% 2.00% 12–0 Official Statement
Sep 16, 2003 1.00% 2.00% 12–0 Official Statement
Aug 12, 2003 1.00% 2.00% 12–0 Official Statement
Jun 25, 2003 1.00% 2.00% 11–1 Parry dissented, preferring a 50 basis point cut. Official Statement
May 6, 2003 1.25% 2.25% 12–0 Official Statement
Mar 18, 2003 1.25% 2.25% 12–0 Official Statement
January 29, 2003 1.25% 2.25% 12–0 Official Statement
January 9, 2003 1.25% 2.25% No meeting, but new discount window rules introduced in October were implemented. These mandated a discount rate 100 basis points higher than the federal funds rate, effectively hiking it by 150 basis points. Official Statement
Dec 10, 2002 1.25% 0.75% 12–0 Official Statement


References[edit]

  1. ^ a b c "Twisted Thinking: Government Debt-Managers May be Undermining Quantitative Easing". The Economist. March 31, 2011. Retrieved April 10, 2011.
  2. ^ a b Bernanke, Ben S.; Reinhart, Vincent R.; Sack, Brian P. (9 September 2004), "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment", Finance and Economics Discussion Series (Washington, D.C.: Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board): 28–29, retrieved 20 October 2012 
  3. ^ a b c Swanson, Eric (Spring 2011). "Let’s Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2". Brookings Papers on Economic Activity (The Brookings Institute). Retrieved 20 October 2012. 
  4. ^ a b http://www.fxtimes.com/fundamental-updates/fomc-does-the-twist-but-markets-respond-with-risk-off-and-usd-strength/
  5. ^ Federal Reserve's Inflation Fight". December 7, 1979. Retrieved October 16, 2012.
  6. ^ a b http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm
  7. ^ http://www.federalreserve.gov/monetarypolicy/maturityextensionprogram.htm
  8. ^ "Federal Reserve issues FOMC statement" (Press release). Board of Governors of the Federal Reserve System. September 13, 2012. Retrieved December 12, 2012. 
  9. ^ Called The Money Illusion
  10. ^ Thompson, Derek (14 September 2012). "The Blogger Who Saved the Economy". The Atlantic. 
  11. ^ "Federal Reserve issues FOMC statement" (Press release). Board of Governors of the Federal Reserve System. December 12, 2012. Retrieved December 12, 2012. 
  12. ^ http://www.federalreserve.gov/newsevents/press/monetary/20131218a.htm
  13. ^ http://www.forbes.com/sites/samanthasharf/2014/07/09/fed-finally-sets-a-date-to-end-its-monthly-asset-purchases/
  14. ^ "FRB: Federal Open Market Committee, Statements and Minutes". Federal Open Market Committee. Retrieved 2008-01-31. 

External links[edit]