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, June 18, 2013, at 1:30 p.m. and continued on Wednesday, June 19, 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

Discussion of Guidelines

In light of the changes in the System Open Market Account (SOMA) portfolio over the past two years, the Committee again discussed its strategy for the eventual normalization of the stance of monetary policy and the size and composition of the Federal Reserve’s balance sheet that was released in the minutes of the Committee’s June 2011 meeting. Although most participants saw this review as prudent longer-range planning, some felt that the discussion was premature. Meeting participants, in general, continued to view the broad principles set out in 2011 as still applicable.

Nonetheless, they agreed that many of the details of the eventual normalization process would likely differ from those specified two years ago, that the appropriate details would depend in part on economic and financial developments between now and the time when it becomes appropriate to begin normalizing monetary policy, and that the Committee would need to provide additional information about its intentions as that time approaches.

Participants continued to think that the Federal Reserve should, in the long run, hold predominantly Treasury securities. Most, however, now anticipated that the Committee would not sell agency mortgage- backed securities (MBS) as part of the normalization process, although some indicated that limited sales might be warranted in the longer run to reduce or eliminate residual holdings. A couple of participants stated that they preferred that the Committee make no decision about sales of MBS until closer to the start of the normalization process. Participants agreed that the Committee’s focus continued to be on providing appropriate monetary accommodation to promote a stronger recovery in the context of price stability and so judged that additional discussion regarding policy normalization should be deferred.

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

The Manager of the 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 April 30–May 1, 2013. The review included a report that the System’s purchases of longer-term assets did not appear to have had an adverse effect on the func- tioning of the markets for Treasury securities or agency MBS, and that the Open Market Desk’s operations in both sectors had proceeded smoothly. By unanimous vote, the Committee ratified the 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.

Staff Review of the Economic Situation

The information reviewed for the June 18–19 meeting suggested that economic activity continued to increase at a moderate rate in the second quarter. Private-sector employment expanded further in recent months, and the unemployment rate in April and May was below its first-quarter average, although it continued to be elevated. Consumer price inflation was subdued, partly reflecting transitory influences. However, measures of longer-run inflation expectations remained stable.

Private nonfarm employment rose moderately in April and May, while total government employment continued to decline somewhat. The unemployment rate was 7.6 percent in May, little changed from its level in April. The labor force participation rate edged up in May, but was still slightly below its first-quarter average, and the employment-to-population ratio increased a bit in recent months. The rate of long-duration unemployment declined slightly, while the share of workers employed part time for economic reasons was little changed; both of these measures remained well above their prerecession levels.