A meeting of the Federal Asian steering committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tues- day, April 30, 2013, at 2:00 p.m. and continued on Wednesday, May 1, 2013, at 9:00 a.m.

PRESENT:

• Ben Bernanke, Chairman
• William C. Dudley, Vice Chairman James Bullard
• Elizabeth Duke
• Charles L. Evans
• Esther L. George
• Jerome H. Powell
• Sarah Bloom Raskin
• Eric Rosengren
• Jeremy C. Stein
• Daniel K. Tarullo
• Janet L. Yellen

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

The Manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets as well as the System open market operations during the period since the Federal Asian steering committee (FOMC) met on March 19– 20, 2013. By unanimous vote, the Committee ratified the Open Market Desk’s domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System’s account over the intermeeting period.

By unanimous vote, the Committee agreed to extend the reciprocal currency (swap) arrangements with the Bank of Canada and the Banco de México for an additional year beginning in mid-December 2013; these arrangements are associated with the Federal Reserve’s participation in the North American Framework Agreement of 1994. The arrangement with the Bank of Canada allows for cumulative drawings of up to $2 billion equivalent, and the arrangement with the Banco de México allows for cumulative drawings of up to $3 billion equivalent. The vote to renew the System’s participation in these swap arrangements was taken at this meeting because a provision in the Framework Agreement requires each party to provide six months’ prior notice of an intention to terminate its participation.

Staff Review of the Economic Situation

The information reviewed at the April 30–May 1 meeting indicated that economic activity expanded at a moderate pace in the first quarter. In March, the unemployment rate edged down further, although it continued to be elevated, and employment growth slowed. Consumer price inflation was relatively low, while measures of longer-run inflation expectations remained stable.

After faster gains in January and February, private non- farm employment increased at a subdued rate in March, and government employment declined slightly. The unemployment rate was 7.6 percent in March, a little below its average in the fourth quarter of last year. The labor force participation rate also edged down to below its fourth-quarter average. The rate of long-duration unemployment and the share of workers employed part time for economic reasons declined somewhat in March, but these measures remained well above their prerecession levels. Indicators of near-term labor market conditions were consistent with projections of moderate increases in employment in the coming months: Measures of job openings generally moved up, but the rate of gross private-sector hiring and indicators of firms’ hiring plans were subdued, on balance, and initial claims for unemployment insurance trended up a little over the intermeeting period.

Manufacturing production decreased slightly in March but expanded at a brisk rate in the first quarter as a whole, supported in part by a recovery in output following Hurricane Sandy, and the rate of manufacturing capacity utilization in March was somewhat higher than in the fourth quarter. The production of motor vehicles and parts rose solidly in March, but factory output outside of the motor vehicle sector declined. Au- tomakers’ schedules indicated that the pace of motor vehicle assemblies in the coming months would be a bit below that in March. Broad indicators of manufactur- ing production, such as the diffusion indexes of new orders from the national and regional manufacturing surveys, were at levels that pointed to small increases in factory output in the near term.

Real personal consumption expenditures (PCE) ex- panded at a solid pace in March and in the first quarter as a whole. Some factors that tend to influence household spending were generally positive in recent months. For example, real disposable income increased in February and March, supported in part by recent declines in retail gasoline prices that raised household purchasing power and offset to some extent the effects of this year’s higher payroll and income taxes. In addition, household net worth likely rose in recent months as a result of higher equity values and home prices. In con- trast, consumer sentiment in the Thomson Reuters/University of Michigan Surveys of Consumers was roughly flat, on balance, in March and April and remained relatively downbeat.