After rising sharply in recent months, longer-term Treasury yields declined modestly over the intermeeting period, even as market expectations for U.S. growth continued to be revised higher. Contacts reported that the earlier increases in yields drew in a range of investors, including foreign institutions, pension funds, and insurance companies. Against this backdrop, term premiums as measured by term structure models and based on estimates using the Open Market Desk's surveys of primary dealers and market participants moved slightly lower. Nonetheless, market participants were attentive to the potential for rising yields going forward, and, in recent months, Desk survey respondents had increased the probability they attach to higher yields at the end of 2021.
According to the median survey responses, the Federal Reserve's net purchases of Treasury and agency securities were expected to end three quarters after the first reduction in the pace of asset purchases.
and the first increase in the target range for the federal funds rate was expected to occur three quarters after that.
In their discussion of the Federal Reserve's asset purchases, various participants noted that it would likely be some time until the economy had made substantial further progress toward the Committee's maximum-employment and price-stability goals relative to the conditions prevailing in December 2020 when the Committee first provided its guidance for asset purchases.
Consistent with the Committee's outcome-based guidance, purchases would continue at least at the current pace until that time. Many participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases.
The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee's goals. A number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.
The manager turned next to money markets and the Federal Reserve's balance sheet. Reserve balances increased further this intermeeting period to a record level of $3.9 trillion. The effective federal funds rate was steady at 7 basis points. However, amid ongoing strong demand for safe short-term investments and reduced Treasury bill supply, the Secured Overnight Financing Rate (SOFR) stood at 1 basis point throughout the period. The overnight reverse repurchase agreement (ON RRP) facility continued to effectively support policy implementation, and take-up peaked at more than $100 billion. A modest amount of trading in overnight repurchase agreement (repo) markets occurred at negative rates, although this development appeared to largely reflect technical factors. The SOMA manager noted that downward pressure on overnight rates in coming months could result in conditions that warrant consideration of a modest adjustment to administered rates and could ultimately lead to a greater share of Federal Reserve balance sheet expansion being channeled into ON RRP and other Federal Reserve liabilities. Although few survey respondents expected an adjustment to administered rates at the current meeting, more than half expected an adjustment by the end of the June FOMC meeting.
The briefing also reviewed considerations that could be relevant for policymakers' judgments regarding whether these arrangements should become permanent standing facilities.
Regarding considerations concerning a permanent standing repo facility, the briefing noted that standing repo operations could be viewed as useful in forestalling funding strains that could spill over into other overnight markets and limit dealers' intermediation activity in financial markets. However, a standing repo facility could be seen as a form of liquidity support for nonbank financial institutions, and one that could create incentives for firms with access to the facility to take on more liquidity risk against eligible securities than would otherwise be the case.
the staff noted that such a facility could limit the propensity for foreign official institutions to execute large sales of U.S. Treasury securities in a stress environment that, in turn, could exacerbate strains in broader U.S. domestic financial markets.
Many participants noted that a standing facility could provide a timely and automatic response to incipient market pressures; they remarked that such pressures can be difficult to anticipate and, as a result, might not be as promptly addressed with discretionary operations.
A few participants noted that a standing repo facility could provide counterparties with additional flexibility in managing the composition of their holdings of high-quality liquid assets, potentially reducing the demand for reserves.
A few participants mentioned that a standing repo facility could be perceived as a means of supporting the financing of the U.S. Treasury or as a permanent Federal Reserve liquidity backstop for nondepository institutions; a couple of others called out the risk that such a facility could crowd out private market sources of liquidity provision.
Nevertheless, participants generally noted that the economy remained far from the Committee's maximum-employment and price-stability goals.
Even so, participants judged that the economy was far from achieving the Committee's broad-based and inclusive maximum-employment goal.
Many participants also remarked that business contacts in their Districts reported having trouble hiring workers, likely reflecting factors such as early retirements, health concerns, childcare responsibilities, and expanded unemployment insurance benefits.
Many participants noted as well that these factors were depressing the labor force participation rate, relative to its pre-pandemic level.
some participants noted that the step-up in demand for labor had started to put some upward pressure on wages.
participants anticipated that inflation as measured by the 12-month change of the PCE price index would move above 2 percent in the near term.
Participants also noted that the expected surge in demand as the economy reopens further, along with some transitory supply chain bottlenecks, would contribute to PCE price inflation temporarily running somewhat above 2 percent.
A number of participants remarked that supply chain bottlenecks and input shortages may not be resolved quickly and, if so, these factors could put upward pressure on prices beyond this year.They noted that in some industries, supply chain disruptions appeared to be more persistent than originally anticipated and reportedly had led to higher input costs.
Some participants mentioned upside risks around the inflation outlook that could arise if temporary factors influencing inflation turned out to be more persistent than expected.
一些与会者强调，基于经济结果的政策指引有一个重要特点，政策的制定是将基于在实现委员会政策目标方面所观察到的进展（亦即Substantial Further Progress，笔者注），而非不确定的经济预测（而非SEP，笔者注）。
some participants emphasized that an important feature of the outcome-based guidance was that policy would be set based on observed progress toward the Committee's goals, not on uncertain economic forecasts. However, a couple of participants commented on the risks of inflation pressures building up to unwelcome levels before they become sufficiently evident to induce a policy reaction.