The Committee agreed that the statement to be re-leased at this meeting should indicate that economic growth was solid in the third quarter and that strains in financial markets had eased somewhat on balance. Members also agreed that economic growth seemed likely to slow over coming quarters, but that the easing action taken at the meeting—combined with the 50 basis point cut in the target federal funds rate at the September meeting—should help to promote moderate growth over time, although some downside risks to growth would remain. Members felt that it was appro-priate to underscore the upside risks to inflation stem-ming from the recent increases in the prices of energy and other commodities, even though recent readings on core inflation had been favorable. While the Com-mittee saw uncertainty regarding the economic outlook as still elevated, it judged that, after this action, the up-side risks to inflation roughly balanced the downside risks to growth.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to exe-cute transactions in the System Account in accordance with the following domestic policy directive:

“The Federal Open Market Committee seeks mone-tary and financial conditions that will foster price sta-bility and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve markets consistent with reducing the federal funds rate to an average of around 4½ percent.”
The vote encompassed approval of the statement be-low to be released at 2:15 p.m.:
“The Federal Open Market Committee decided today to lower its target for the Federal funds rate 25 basis points to 4½ percent. Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s ac-tion, combined with the policy action taken in Sep-tember, should help forestall some of the adverse ef-fects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.
Readings on core inflation have improved modestly this year, but recent increases in energy and commod-ity prices, among other factors, may put renewed up-ward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation develop-ments carefully.
The Committee judges that, after this action, the up-side risks to inflation roughly balance the downside risks to growth. The Committee will continue to as-sess the effects of financial and other developments on economic prospects and will act as needed to fos-ter price stability and sustainable economic growth.”
Votes for this action: Messrs. Bernanke, Geith-ner, Evans, Kohn, Kroszner, Mishkin, Poole, Rosengren, and Warsh.
Votes against this action: Mr. Hoenig.
Mr. Hoenig dissented because he believed that policy should remain unchanged at this meeting. Projections for the U.S. and global economies suggested that growth was likely to proceed at a reasonable pace over the outlook period. To better assure that outcome, the FOMC had moved rates down significantly at its Sep-tember meeting. At this meeting, inflation risks ap-peared elevated and Mr. Hoenig felt that the target fed-eral funds rate was currently close to neutral. In these circumstances, he judged that policy needed to be slightly firm to better hold inflation in check. Going forward, if the data suggested the Committee needed to ease further, it could do so. He also recognized that liquidity remains a near-term challenge and that the Federal Reserve would be prepared to act if needed. Mr. Hoenig saw the risks to both economic growth and inflation to be elevated and preferred to wait, watch, and be ready to act depending on how events devel-oped.
The Committee then resumed its discussion of an en-hanced role for the economic projections that are made periodically by the members of the Board of Gover-nors and the Reserve Bank presidents. At this meeting, participants reached a consensus on increasing the fre-quency and expanding the content of the projections that in the past have been released to the public in summary form twice a year. They agreed to publish with the minutes a summary of participants’ economic projections made for this meeting and to release a press statement describing the plan for the future. The re-lease of more frequent forecasts covering longer time spans and accompanied by explanations of those fore-casts was seen as providing the public with more con-text for understanding the Committee’s monetary pol-icy decisions.

In conjunction with the October 2007 FOMC meeting, the members of the Board of Governors and the presi-dents of the Federal Reserve Banks, all of whom par-ticipate in the deliberations of the FOMC, provided projections for economic growth, unemployment, and inflation in 2007, 2008, 2009, and 2010. Projections were based on information available through the con-clusion of the October meeting, on each participant’s assumptions regarding a range of factors likely to affect economic outcomes, and his or her assessment of ap-propriate monetary policy. “Appropriate monetary policy” is defined as the future policy most likely to foster outcomes for economic activity and inflation that best satisfy the participant’s interpretation of the Federal Reserve’s dual objectives of maximum em-ployment and price stability.
The projections, which are summarized in table 1 and chart 1, suggest that FOMC participants expected that, in the near term, output will grow at a pace somewhat below its trend rate and the unemployment rate will edge higher, owing primarily to weakness in housing markets and to the tightening in the availability of credit resulting from recent strains in financial markets. Further ahead, output was projected to expand at a pace close to its long-run trend. Total inflation was expected to be lower in 2008 than in 2007, and then to edge down further in subsequent years.

The Outlook

Data available at the time of the October FOMC meet-ing indicated that economic growth had been solid dur-ing the second and third quarters, and evidence that the contraction in the housing sector had begun to spill over substantially to other sectors of the economy re-mained scant. Consequently, despite the recent finan-cial market turmoil, the central tendency of partici-pants’ projections for real GDP growth in 2007, at 2.4 to 2.5 percent, was little changed from the central ten-dency of the projections provided in conjunction with the June FOMC meeting and included in the Board’s Monetary Policy Report to the Congress in July. However, the central tendency of participants’ projections for real GDP growth in 2008 was revised down to 1.8 to 2.5 percent, notably below the 2½ to 2¾ percent central tendency in June. These revisions to the 2008 outlook since June stemmed from a number of factors, includ-ing the tightened terms and reduced availability of sub-prime and jumbo mortgages, weaker-than-expected housing data, and rising oil prices. Partly in response to declining housing wealth, the personal saving rate was expected to rise over the next few years, contributing to restraint on the growth of personal consumption ex-penditures. However, net exports were expected to provide some support to growth. The subpar eco-nomic growth projected in the near term was not an-ticipated to persist. Growth was expected to pick up as the adjustment in housing markets ran its course, fi-nancial markets gradually resumed more-normal func-tioning, and as the monetary policy easing at the Sep-tember and October FOMC meetings provided sup-port to aggregate demand. Economic activity was pro-jected to expand at a pace broadly in line with partici-pants’ estimates of the rate of expansion of the econ-omy’s productive potential in 2009 and to continue at much the same pace in 2010. Participants read last summer’s benchmark revisions to the national income and product accounts as suggesting a somewhat slower rate of trend growth than previously thought.
Most participants expected that, with output growth running somewhat below trend over the next year or so, the unemployment rate would increase modestly. The central tendency of participants’ projections for the average rate of unemployment in the fourth quarter of 2008 was 4.8 to 4.9 percent, slightly above the 4¾ percent unemployment rate forecasted in June; these projections suggested the emergence of a little slack in labor markets. The central tendency of partici-pants’ projections was for the unemployment rate to stabilize in 2009 and to fall back a bit in 2010 as output and employment growth pick up.

Overall inflation was expected to edge down over the next few years, fostered by an assumed flattening of energy prices about in line with futures markets quotes, a modest easing of pressures on resource utilization, and fairly well anchored inflation expectations. Partici-pants’ projections for core inflation this year and next were marked down from those provided at the time of the June FOMC meeting, partly in light of recent gen-erally favorable core inflation data that pointed to some reduction in underlying inflation pressures. The central tendency of projections for core PCE inflation in 2007 was 1.8 to 1.9 percent, down from 2 to 2¼ percent in June. The central tendency of core inflation projec-tions for 2008 was 1.7 to 1.9 percent. Participants’ pro-jections for PCE inflation in 2009 and 2010 were im-portantly influenced by their judgments about the measured rates of inflation consistent with the Federal Page 10 Federal Open Market Committee Reserve’s dual mandate to promote maximum em-ployment and price stability and about the time frame over which policy should aim to attain those rates given current economic conditions. The central tendency of participants’ projections for both core and total infla-tion in 2010 ranged from 1.6 to 1.9 percent.


Available at:

http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20071031.pdf