The following is the unedited press release available on the Web site of Federal Reserve at

http://www.federalreserve.gov/monetarypolicy/fomcminutes20091104.htm

FOMC Minutes | Summary of Economic Projections

Developments in Financial Markets and the Federal Reserve''s Balance Sheet

The Manager of the System Open Market Account reported on recent developments in domestic and foreign financial markets. The Manager also reported on System open market operations in Treasury securities, agency debt, and agency mortgage-backed securities (MBS) since the Committee''s September 22-23 meeting. By unanimous vote, the Committee ratified those transactions. There were no open market operations in foreign currencies for the System''s account during the intermeeting period. Since the Committee met in September, the Federal Reserve''s total assets were about unchanged, on balance, at approximately $2.2 trillion, as the increase in the System''s holdings of securities roughly matched a further decline in usage of the System''s credit and liquidity facilities. The Manager noted that, as of October 30, $300 billion in Treasury securities had been purchased, as directed by the Committee. Overall, the Treasury market had recovered substantially from the strains during the financial crisis, and the Manager reported that the completion of the Federal Reserve''s purchase program did not appear to have led to any significant upward pressure on Treasury yields or to any notable deterioration in Treasury market functioning. There was little evidence, to date, of a buildup in year-end funding pressures, although demand for Treasury bills with maturities extending just beyond the year-end seemed to be elevated. The Manager noted that the recent path of purchases of agency debt was consistent with buying a cumulative amount of $175 billion by the end of the first quarter of 2010.

The staff briefed the Committee on recent developments regarding various Federal Reserve liquidity and credit facilities, including the Term Auction Facility (TAF), the primary credit program, the Term Asset-Backed Securities Loan Facility (TALF), and the swap lines with foreign central banks. Usage of these facilities had been declining in recent months as financial market conditions continued to improve. On September 24, the Board of Governors announced a gradual reduction in amounts to be auctioned under the TAF through January and indicated that auctions of credit with maturities longer than 28 days would be phased out. The staff reviewed the changes that had been made since the onset of the crisis to the terms of the primary credit program, including loan maturities and interest rates. The staff noted that reducing the maximum maturity of loans available under the primary credit program from 90 days to 28 days would represent another step toward normalization of the Federal Reserve''s policy-implementation framework and would align the maximum maturities of the primary credit program with those under the TAF, but no action on this matter was taken by the Board at this meeting. Regarding the TALF, the staff indicated that auto and credit card asset-backed security issuance was increasingly being funded by non-TALF sources; however, commercial MBS remained more dependent on TALF financing.

The staff presented another update on the continuing development of several tools that could help support a smooth withdrawal of policy accommodation at the appropriate time. These measures include executing reverse repurchase agreements (RPs) on a large scale, potentially with counterparties other than the primary dealers; implementing a term deposit facility, available to depository institutions, to reduce the supply of reserve balances; and taking steps to tighten the link between the interest rate paid on reserve balances held at the Federal Reserve Banks and the federal funds rate. The staff had made considerable further progress on these tools. Participants expressed confidence that the Committee would be in a position to remove policy accommodation when appropriate by raising the rate of interest paid on excess reserves and by employing reserve-management tools such as reverse RPs, term deposits, and, if desirable, asset sales. Completing the operational work necessary to establish reverse RPs and term deposits as tools that can drain large volumes of reserves was viewed as an important near-term objective. Participants anticipated that the Federal Reserve would conduct tests of these tools, but they stressed that such testing would not imply that these tools would be employed for policy purposes any time soon.

Participants expressed a range of views about how the Committee might use its various tools in combination to foster most effectively its dual objectives of maximum employment and price stability. As part of the Committee''s strategy for eventual exit from the period of extraordinary policy accommodation, several participants thought that asset sales could be a useful tool to reduce the size of the Federal Reserve''s balance sheet and lower the level of reserve balances, either prior to or concurrently with increasing the policy rate. In their view, such sales would help reinforce the effectiveness of paying interest on excess reserves as an instrument for firming policy at the appropriate time and would help quicken the restoration of a balance sheet composition in which Treasury securities were the predominant asset. Other participants had reservations about asset sales--especially in advance of a decision to raise policy interest rates--and noted that such sales might elicit sharp increases in longer-term interest rates that could undermine attainment of the Committee''s goals. Furthermore, they believed that other reserve management tools such as reverse RPs and term deposits would likely be sufficient to implement an appropriate exit strategy and that assets could be allowed to run off over time, reflecting prepayments and the maturation of issues. Participants agreed to continue to evaluate various potential policy-implementation tools and the possible combinations and sequences in which they might be used. They also agreed that it would be important to develop communication approaches for clearly explaining to the public the use of these tools and the Committee''s exit strategy more broadly.

Staff Review of the Economic Situation

The information reviewed at the November 3-4 meeting suggested that overall economic activity continued to rise in recent months. Manufacturers increased production in September for the third consecutive month. The gradual recovery in construction of single-family homes from its extremely low level earlier in the year continued, and home sales increased in the third quarter. Although consumer spending on motor vehicles declined in September after the expiration of government rebates, other household spending rose. Outlays for equipment and software (E&S) appeared to be stabilizing. However, the labor market weakened further, and business spending on nonresidential structures continued to decline. Meanwhile, consumer price inflation remained subdued in recent months.

The labor market continued to weaken in September, but the pace of deterioration lessened from that seen earlier in the year. Job losses remained widespread across industries. The length of the average workweek for production and non-supervisory workers decreased, and the index of aggregate hours worked for this group fell, albeit more slowly than earlier in the year. In the household survey, the unemployment rate rose in September to 9.8 percent, and the labor force participation rate fell to its lowest level of the year. Continuing claims for unemployment insurance through regular state programs declined through early October, but total claims, including those for extended and emergency benefits, remained high.

Industrial production rose in September for the third consecutive month. A substantial portion of the third-quarter gain was directly attributable to a rebound in motor vehicle assemblies and related parts production, but increases in production were widespread across the industrial sector. Indicators from business surveys suggested that there would be further gains in factory output over the near term. Nevertheless, considerable slack remained in the manufacturing sector, as the factory utilization rate for September was up only a bit from its historical low earlier this year.

For the third quarter as a whole, real personal consumption expenditures (PCE) rose at a solid rate, with noticeable increases in motor vehicles, furniture, electronics, and other durable goods. However, real outlays declined in September after a sharp increase in August. The monthly pattern in expenditures was significantly affected by swings in motor vehicle sales during and after the government''s """"cash-for-clunkers"""" program. Real disposable personal income fell for the fourth consecutive month in September, reflecting the weakness in the labor market. Poor labor market conditions and prior declines in household net worth appeared to have weighed on consumer sentiment, and the October Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) suggested that many banking institutions continued to tighten standards for consumer lending in the third quarter.

The housing sector continued to recover, on balance. Although single-family starts were about flat in September, the number of starts was well above the record low reached in the first quarter of the year. In the much smaller multifamily sector, where tight credit conditions persisted and vacancies remained elevated, starts were about unchanged. Sales of new homes, although down a bit in September, rose over the third quarter as a whole. The inventory of unsold new homes declined further, as sales outpaced construction. Sales of existing single-family homes increased in September and for the quarter as a whole, and recent resale activity appeared to be driven primarily by transactions of non-distressed properties. The average interest rate on 30-year conforming fixed-rate mortgages remained very low over the inter-meeting period. Although some house price indexes had risen in recent months, such indexes remained below year-earlier levels.

Real spending on E&S appeared to have stabilized in the third quarter. Real business outlays on high-tech E&S increased modestly further, outlays for aircraft posted another gain, and business investment in motor vehicles and other areas was down only slightly. The improvements in a number of the fundamental determinants of investment in E&S, including a decline in the cost of capital and a rise in business output, suggested further, albeit sluggish, gains in spending over the next few quarters. The responses to the October SLOOS indicated that banks continued to tighten standards on commercial and industrial (C&I) loans to firms. Meanwhile, conditions in the nonresidential construction sector generally remained quite poor. The recent trend in architectural billings was consistent with further declines in nonresidential construction, and employment in the sector continued to decline. The October SLOOS suggested that financing for new construction projects was very difficult for businesses to obtain. The Bureau of Economic Analysis estimated that businesses continued to liquidate inventories in the third quarter, but at a slower rate than in the preceding quarter.

In August, the U.S. international trade deficit narrowed, as exports edged up and imports declined, but it remained wider than it had been at its recent low point in May. The increase in exports of goods and services was held down by a sharp drop in the volatile aircraft category. The decline in imports of goods and services was led by a lower volume of imported oil. In contrast, imports of machinery, automotive products, and industrial supplies increased.

Indicators of economic activity in the advanced foreign economies during the third quarter were mixed, but consistent with economic recovery in the aggregate. In most countries, purchasing managers surveys were at levels consistent with expansion, and many indicators of consumer and business confidence continued to show improvement. Economic indicators were strongest in Japan and the euro area, where industrial production rebounded sharply. In contrast, real gross domestic product (GDP) contracted in the United Kingdom in the third quarter, and real GDP in Canada edged down in July and August. In most emerging market economies, recent data showed that economic recovery continued in the third quarter. Real GDP increased strongly in China, Korea, and Singapore, and the recovery in Brazil continued. In Mexico, available data suggested that activity had begun to expand after several quarters of contraction. Across most of the major foreign economies, price pressures remained subdued. Twelve-month inflation remained elevated but declined further in Mexico and Brazil.

In the United States, recent monthly data indicated that consumer price inflation remained subdued. The PCE price index moved up only a bit in September as increases in energy prices were largely offset by declines in food prices. Core PCE prices also edged up during the month. Gasoline prices rose again in October. Median year-ahead inflation expectations in the final October Reuters/University of Michigan Surveys of Consumers increased, remaining higher than at the turn of the year, but longer-term inflation expectations from this survey were about unchanged. Measures of labor compensation rose moderately in the third quarter after decelerating significantly in the first half of the year. The employment cost index for wages and salaries was boosted by increases in several industry categories that might have been affected by the rise in the minimum wage in July. Output per hour rose sharply in the second and third quarters, contributing to a sizable decline in unit labor costs so far this year.

Staff Review of the Financial Situation

Market participants largely anticipated the decisions by the Federal Open Market Committee (FOMC) at the September meeting to leave the target range for the federal funds rate unchanged and to extend the Federal Reserve''s purchases of agency MBS and agency debt through the end of the first quarter of 2010 to allow for a gradual reduction in the pace of these purchases. The announcement of the Committee''s intent to purchase the full $1.25 trillion of agency MBS securities reduced some uncertainty about the cumulative amount of these purchases. After the release of the statement, investors marked down their expected path for the federal funds rate slightly; over subsequent weeks, that initial reaction was largely reversed so that, on balance, the expected path appeared to change little over the inter-meeting period. Yields on nominal Treasury securities were about unchanged on net. Inflation compensation based on five-year Treasury inflation-protected securities (TIPS) rose over the inter-meeting period, apparently owing in part to an increase in oil and other commodity prices, while five-year inflation compensation five years ahead was little changed.