Monetary Policy Report, March 1, 2024

Board of Governors of the Federal Reserve System

For use at 11:00 a.m. EST

March 1, 2024

Monetary Policy rePort

March 1, 2024

Letter of transmittaL

B  G  

F R S

Washington, D.C., March 1, 2024

T P   S

T S   H  R

The Board of Governors is pleased to submit its Monetary Policy Report pursuant to

section 2B of the Federal Reserve Act.

Sincerely,

Jerome H. Powell, Chair

statement on Longer-run goaLs and monetary PoLicy strategy

Adopted effective January24, 2012; as reafrmed effective January30, 2024

The Federal Open Market Committee (FOMC) is rmly committed to fullling its statutory mandate from

the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The

Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity

facilitates well-informed decisionmaking by households and businesses, reduces economic and nancial

uncertainty, increases the eectiveness of monetary policy, and enhances transparency and accountability,

which are essential in a democratic society.

Employment, ination, and long-term interest rates uctuate over time in response to economic and nancial

disturbances. Monetary policy plays an important role in stabilizing the economy in response to these

disturbances. The Committee’s primary means of adjusting the stance of monetary policy is through changes

in the target range for the federal funds rate. The Committee judges that the level of the federal funds rate

consistent with maximum employment and price stability over the longer run has declined relative to its

historical average. Therefore, the federal funds rate is likely to be constrained by its eective lower bound

more frequently than in the past. Owing in part to the proximity of interest rates to the eective lower bound,

the Committee judges that downward risks to employment and ination have increased. The Committee is

prepared to use its full range of tools to achieve its maximum employment and price stability goals.

The maximum level of employment is a broad-based and inclusive goal that is not directly measurable

and changes over time owing largely to nonmonetary factors that aect the structure and dynamics of the

labor market. Consequently, it would not be appropriate to specify a xed goal for employment; rather, the

Committee’s policy decisions must be informed by assessments of the shortfalls of employment from its

maximum level, recognizing that such assessments are necessarily uncertain and subject to revision. The

Committee considers a wide range of indicators in making these assessments.

The ination rate over the longer run is primarily determined by monetary policy, and hence the Committee

has the ability to specify a longer-run goal for ination. The Committee rearms its judgment that ination

at the rate of 2percent, as measured by the annual change in the price index for personal consumption

expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. The

Committee judges that longer-term ination expectations that are well anchored at 2percent foster price

stability and moderate long-term interest rates and enhance the Committee’s ability to promote maximum

employment in the face of signicant economic disturbances. In order to anchor longer-term ination

expectations at this level, the Committee seeks to achieve ination that averages 2percent over time, and

therefore judges that, following periods when ination has been running persistently below 2percent,

appropriate monetary policy will likely aim to achieve ination moderately above 2percent for some time.

Monetary policy actions tend to inuence economic activity, employment, and prices with a lag. In setting

monetary policy, the Committee seeks over time to mitigate shortfalls of employment from the Committee’s

assessment of its maximum level and deviations of ination from its longer-run goal. Moreover, sustainably

achieving maximum employment and price stability depends on a stable nancial system. Therefore, the

Committee’s policy decisions reect its longer-run goals, its medium-term outlook, and its assessments of

the balance of risks, including risks to the nancial system that could impede the attainment of the

Committee’s goals.

The Committee’s employment and ination objectives are generally complementary. However, under

circumstances in which the Committee judges that the objectives are not complementary, it takes into account

the employment shortfalls and ination deviations and the potentially dierent time horizons over which

employment and ination are projected to return to levels judged consistent with its mandate.

The Committee intends to review these principles and to make adjustments as appropriate at its annual

organizational meeting each January, and to undertake roughly every 5years a thorough public review of its

monetary policy strategy, tools, and communication practices.

contents

Note: This report reects information that was publicly available as of noon EST on February29, 2024.

Unless otherwise stated, the time series in the gures extend through, for daily data, February27, 2024; for monthly

data, January2024; and, for quarterly data, 2023:Q4. In bar charts, except as noted, the change for a given period is

measured to its nal quarter from the nal quarter of the preceding period.

For gures 33 and 40 as well as gure C in the box “Recent Housing Market Developments,” note that the S&P/Case-Shiller U.S. National Home Price

Index, the S&P 500 Index, and the Dow Jones Bank Index are products of S&P Dow Jones Indices LLC and/or its afliates and have been licensed for use

and/or photocopying in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P

Dow Jones Indices LLC’s indices, please visit www.spdji.com. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC, and Dow Jones®

is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their afliates,

nor their third-party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class

or market sector that it purports to represent, and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their afliates, nor their third-

party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

contents

Summary .................................................................1

Recent Economic and Financial Developments ................................... 1

Monetary Policy ........................................................... 2

Special Topics ............................................................. 3

Part 1: Recent Economic and Financial Developments .....................5

Domestic Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Developments .................................................... 24

International Developments ................................................. 30

Part 2: Monetary Policy ..................................................35

Part 3: Summary of Economic Projections ................................45

Abbreviations ............................................................63

List of Boxes

Employment and Earnings across Demographic Groups ............................ 10

Recent Housing Market Developments ......................................... 19

Developments Related to Financial Stability ..................................... 27

Developments in the Federal Reserve’s Balance Sheet and Money Markets .............. 38

Monetary Policy Rules in the Current Environment ................................ 41

Forecast Uncertainty ....................................................... 60

While ination remains above the Federal

Open Market Committee’s (FOMC) objective

of 2percent, it has eased substantially over

the past year, and the slowing in ination

has occurred without a signicant increase

in unemployment. The labor market remains

relatively tight, with the unemployment rate

near historically low levels and job vacancies

still elevated. Real gross domestic product

(GDP) growth has also been strong, supported

by solid increases in consumer spending.

The FOMC has maintained the target range

for the federal funds rate at 5¼ to 5½percent

since its July2023 meeting. The Committee

views the policy rate as likely at its peak for

this tightening cycle, which began in early

2022. The Federal Reserve has also continued

to reduce its holdings of Treasury and agency

mortgage-backed securities.

As labor market tightness has eased and

progress on ination has continued, the risks

to achieving the Committee’s employment and

ination goals have been moving into better

balance. Even so, the Committee remains

highly attentive to ination risks and is acutely

aware that high ination imposes signicant

hardship, especially on those least able to meet

the higher costs of essentials.

The FOMC is strongly committed to

returning ination to its 2percent objective.

In considering any adjustments to the target

range for the federal funds rate, the Committee

will carefully assess incoming data, the

evolving outlook, and the balance of risks.

The Committee does not expect it will be

appropriate to reduce the target range until it

has gained greater condence that ination is

moving sustainably toward 2percent.

Recent Economic and Financial

Developments

Ination. Consumer price ination has

slowed notably but remains above 2percent.

The price index for personal consumption

expenditures (PCE) rose 2.4percent over the

12months ending in January, down from a

peak of 7.1percent in 2022. The core PCE

price index—which excludes volatile food

and energy prices and is generally considered

a better guide to the direction of future

ination—rose 2.8percent in the 12months

ending in January, and the slowing in ination

was widespread across both goods and

services prices. More recently, core PCE prices

increased at an annual rate of 2.5percent over

the sixmonths ending in January, though

measuring ination over relatively short

periods risks exaggerating the inuence of

idiosyncratic or temporary factors. Measures

of longer-term ination expectations are

within the range of values seen in the decade

before the pandemic and continue to be

broadly consistent with the FOMC’s longer-

run objective of 2percent.

The labor market. The labor market has

remained relatively tight, with job gains

averaging 239,000 per month since June

and the unemployment rate near historical

lows. Labor demand has eased—as job

openings have declined in many sectors of the

economy—but continues to exceed the supply

of available workers. Labor supply has trended

higher over the past year, reecting a continued

strong pace of immigration and increases in

the labor force participation rate, particularly

among prime-age workers. Reecting the

improved balance between labor demand and

supply, nominal wage gains slowed in 2023,

but they remain above a pace consistent with

2percent ination over the longer term, given

prevailing trends in productivity growth.

Economic activity. Real GDP increased

3.1percent last year, notably faster than in

2022 despite tighter nancial conditions,

including elevated longer-term interest rates.

Consumer spending grew at a solid pace,

and housing market activity started to turn

back up in the second half of last year after

summary

2 SUMMARY

having declined since early 2021. However,

real business xed investment growth slowed,

likely reecting tighter nancial conditions and

downbeat business sentiment. In contrast to

GDP, manufacturing output was little changed,

on net, last year, a downshift following two

years of robust post-pandemic gains.

Financial conditions. Conditions in nancial

markets tightened considerably further over the

summer and early fall before reversing course

toward the end of the year. The FOMC raised

the target range for the federal funds rate a

further 25 basis points at its meeting last July,

bringing the overall increase in the target range

for this tightening cycle to 525 basis points.

The market-implied expected path of the

federal funds rate has moved up, on net, since

the middle of 2023, and yields on longer-term

nominal Treasury securities are notably higher

on balance. Credit remains generally available

to most households and businesses but at

elevated interest rates, which have weighed

on nancing activity. Lending by banks to

households and businesses slowed notably

since June as banks continued to tighten

standards and demand for loans softened.

Financial stability. Overall, the banking system

remains sound and resilient; although acute

stress in the banking system has receded

since last March, a few areas of risk warrant

continued monitoring. Upward pressure on

asset valuations continued, with real estate

prices elevated relative to rents and high

price-to-earnings ratios in equity markets.

Borrowing from nonnancial businesses

and households continued to increase at a

pace slower than that of nominal GDP, and

the combined debt-to-GDP ratio now sits

close to its 20-year low. Vulnerabilities from

nancial-sector leverage remain notable. While

risk-based bank capital ratios stayed solid

and increased broadly, declines in the fair

values of xed-rate assets have been sizable

relative to the regulatory capital at some

banks. Meanwhile, leverage at hedge funds

has stabilized at high levels, and leverage

at life insurers increased to values close to

the historical averages but with a liability

composition that has become more reliant

on nontraditional sources of funding. Most

banks maintained high liquidity and stable

funding, while bank funding costs continue to

increase. (See the box “Developments Related

to Financial Stability” in Part 1.)

International developments. Following a

rebound in early 2023, growth in foreign

economic activity was subdued in the

second half of last year. Economic growth

was particularly weak in advanced foreign

economies (AFEs) as monetary policy

tightening weighed on activity and high

ination eroded real household incomes.

Structural adjustment to higher energy prices

in Europe continued to hinder economic

performance, while property-sector weakness

and sluggish domestic demand restrained

Chinese economic activity. Foreign headline

ination has fallen further, reecting declines

in core and food ination. However, the pace

of disination has varied across countries and

sectors, with the moderation in goods ination

generally outpacing that in services ination.

Most foreign central banks paused policy

interest rate hikes in the second half of last

year and have since held rates steady. Policy

rate paths implied by nancial market pricing

suggest that central banks in many AFEs are

expected to begin lowering their policy rates

in 2024. Several central banks in emerging

market economies have already begun easing

monetary policy. The trade-weighted exchange

value of the U.S. dollar has increased slightly,

on net, since the middle of last year.

Monetary Policy

Interest rate policy. After signicantly

tightening the stance of monetary policy

since early 2022, the FOMC has maintained

the target range for the policy rate at 5¼to

5½percent since its meeting last July.

Although the FOMC judges that the risks to

achieving its employment and ination goals

are moving into better balance, the Committee

MONETARY POLICY REPORT: MARCH 2024 3

remains highly attentive to ination risks.

The Committee has indicated that it does

not expect it will be appropriate to reduce

the target range until it has gained greater

condence that ination is moving sustainably

toward 2percent. In considering any

adjustments to the target range for the federal

funds rate, the Committee will carefully assess

incoming data, the evolving outlook, and the

balance of risks.

Balance sheet policy. The Federal Reserve has

continued the process of signicantly reducing

its holdings of Treasury and agency securities

in a predictable manner, contributing to the

tightening of nancial conditions.

Beginning

in June2022, principal payments from

securities held in the System Open Market

Account have been reinvested only to the

extent that they exceeded monthly caps. Under

this policy, the Federal Reserve has reduced

its securities holdings about $640billion since

mid-June2023, bringing the total reduction in

securities holdings since the start of balance

sheet runo to about $1.4trillion. The

FOMC has stated that it intends to maintain

securities holdings at amounts consistent with

implementing monetary policy eciently

and eectively in its ample-reserves regime.

To ensure a smooth transition, the FOMC

intends to slow and then stop reductions in

its securities holdings when reserve balances

are somewhat above the level that the FOMC

judges to be consistent with ample reserves.

Special Topics

Employment and earnings across groups. An

exceptionally tight labor market over the past

two years has been especially benecial for

historically disadvantaged groups of workers.

As a result, many of the long-standing

disparities in employment and wages by sex,

1. See the May4, 2022, press release regarding the

Plans for Reducing the Size of the Federal Reserve’s

Balance Sheet, available on the Board’s website at https://

www.federalreserve.gov/newsevents/pressreleases/

monetary20220504b.htm.

race, ethnicity, and education have narrowed,

and some gaps reached historical lows in

2023. However, despite this narrowing,

signicant disparities in absolute levels across

groups remain. (See the box “Employment

and Earnings across Demographic Groups”

in Part 1.)

Housing sector. The rise in mortgage rates

over the past two years has reduced housing

demand, resulting in a steep drop in housing

activity in 2022 and a marked slowing in

house price growth from its historically high

pace. Osetting factors boosting housing

demand, such as the robust job market and

the increased prevalence of remote work,

have prevented signicant price declines.

High mortgage rates have also discouraged

some potential sellers with low rates on their

current mortgages from moving, which has

kept the existing home market unusually thin.

The shortage of available existing homes has

pushed some remaining homebuyers toward

new homes and supported a modest rebound

in construction of single-family homes later

in 2023. In contrast, multifamily starts rose

to historically high levels in 2022 but have

more recently fallen back because of builders’

concerns about the eect of the signicant

amount of new multifamily supply on rents

and property prices. (See the box “Recent

Housing Market Developments” in Part 1.)

Federal Reserve’s balance sheet and money

markets. The size of the Federal Reserve’s

balance sheet has decreased since June as

the FOMC continued to reduce its securities

holdings. Despite ongoing balance sheet

runo, reserve balances—the largest liability

on the Federal Reserve’s balance sheet—edged

up as declines in the usage of the overnight

reverse repurchase agreement facility—

another Federal Reserve liability—more

than matched the decline in assets. (See the

box “Developments in the Federal Reserve’s

Balance Sheet and Money Markets” in Part2.)

Monetary policy rules. Simple monetary policy

rules, which prescribe a setting for the policy

4 SUMMARY

interest rate in response to the behavior of

a small number of economic variables, can

provide useful guidance to policymakers.

With ination easing and supply and demand

conditions in labor markets coming into better

balance, the policy rate prescriptions of most

simple monetary policy rules have decreased

recently and now call for levels of the federal

funds rate that are close to the current target

range for the federal funds rate. (See the

box “Monetary Policy Rules in the Current

Environment” inPart2.)

Domestic Developments

Ination has eased but remains elevated

After surging in 2021 and 2022, ination

slowed notably last year. The price index for

personal consumption expenditures (PCE)

rose 2.4percent over the 12months ending

in January, down from a peak of 7.1percent

in 2022, though still above the Federal Open

Market Committee’s (FOMC) longer-run

objective of 2percent (gure1). The core PCE

price index—which excludes volatile food

and energy prices—rose 2.8percent over the

12months ending in January. More recently,

core PCE prices increased at an annual rate

of 2.5percent over the six months ending

in January, though measuring ination over

relatively short periods risks exaggerating

the inuence of idiosyncratic or temporary

factors (gure2). The trimmed mean measure

of PCE prices constructed by the Federal

Reserve Bank of Dallas—which provides an

alternative approach to reducing the inuence

of idiosyncratic price movements—increased

3.3percent over the 12months ending

in December, somewhat higher than the

coreindex (gure 1).

Consumer energy prices have

declined, while food price ination has

slowedmarkedly

After hovering around $80 per barrel in the

rst half of last year, oil prices rose notably

in late summer, albeit to levels still well below

those seen in 2022, but have since declined,

on net, to around $83 per barrel (gure3).

Gasoline prices have followed a similar

pattern. The moderation in oil prices last

fall reects weak economic activity abroad

and increases in U.S. and other non-OPEC

(Organization of the Petroleum Exporting

Countries) oil production. Since late last year,

geopolitical tensions in the Middle East and

rerouting of shipping away from the Red Sea

have placed some upward pressure on oil

Part 1

recent economic and financiaL deveLoPments

Excluding food and energy

Total

Percent change from year earlier

20242023202220212020201920182017

1. Personal consumption expenditures price indexes

Monthly

OTE

: Trimmed mean data extend through December 2023.

OURCE

: For trimmed mean, Federal Reserve Bank of Dallas; for a

else, Bureau of Economic Analysis; all via Haver Analytics.

Trimmed mean

12-month change

6-month change

Percent, annual rate

20242023202220212020201920182017

2. Core personal consumption expenditure price index

Monthly

SOURCE: Bureau of Economic Analysis, personal consumption

expenditures via Haver Analytics.

3-month change

Brent spot price

100

120

140

Dollars per barrel

2019 2020 2021 2022 2023 2024

3. Spot and futures prices for crude oil

Weekly

24-month-ahead

futures contracts

OTE

: The data are weekly averages of daily data and extend throug

February 23, 2024.

OURCE

: ICE Brent Futures via Bloomberg.

6 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

prices. Continuing geopolitical tensions pose

an upside risk to energy prices. Natural gas

prices remain well below the elevated 2022

levels due to strong production and high

inventory levels. All told, consumer energy

prices fell 4.9percent in the 12months ending

in January (gure4, left panel).

Food price ination slowed markedly last

year, as prices of agricultural commodities

and livestock fell (gure5). This moderation

brought the 12-month change in food prices

down to 1.4percent in January, a substantial

slowing from the 11percent increase recorded

over 2022 (gure4, left panel).

Prices of both energy and food products are

of particular importance for lower-income

households, for which such necessities account

for a large share of expenditures. Reecting the

sharp increases seen in 2021 and 2022, these

price indexes are about 25percent higher than

before the pandemic.

Core goods prices have been declining as

supply bottlenecks ease and import price

ination falls . . .

Outside of food and energy prices, there has

been signicant deceleration across the main

spending categories, though disination

Food and

beverages

Services

ex. energy

and housing

Goods ex. food, beverages, and energy

Percent change from year earlier

20242023202220212020201920182017

Food and energy

Percent change from year earlier

Energy

–

Percent change from year earlier

20242023202220212020201920182017

Components of core prices

Monthly

Housing services

NOTE: The data are monthly.

SOURCE: Bureau of Economic Analysis via Haver Analytics.

4. Subcomponents of personal consumption expenditures price indexes

Agriculture

and livestock

100

120

140

160

180

Week ending January 3, 2014 = 100

2014 2016 2018 2020 2022 2024

5. Spot prices for commodities

Weekly

Industrial metals

OTE

: The data are weekly averages of daily data and extend through

February 23, 2024.

OURCE

: For industrial metals, S&P GSCI Industrial Metals Spot

Index; for agriculture and livestock, S&P GSCI Agriculture & Livestock

Spot Index; both via Haver Analytics.

MONETARY POLICY REPORT: MARCH 2024 7

has been more pronounced in some than in

others (gure4, right panel). Core goods

prices fell 0.6percent in the 12 months

ending in January, and the deceleration was

broad based, as the supply chain issues and

other capacity constraints that had earlier

boosted ination so much eased substantially.

For example, suppliers’ delivery times had

lengthened considerably during the pandemic

but have been getting shorter over the past

year (gure6). Core goods ination was also

held down last year by a net decline in nonfuel

import prices, which, in turn, largely reected

falling commodity prices (gure7).

. . . while core services price ination has

been slowing but remains elevated

Price ination for both housing services and

core services other than housing slowed over

the past year, though it remains elevated.

Increases in housing services prices began

to moderate, coming in at 6.1percent in the

12months ending in January, down from a

peak of more than 8percent (gure4, right

panel). This slowing is consistent with the

notably smaller increases in market rents on

new housing leases to new tenants seen since

late 2022 (gure8). Because prices for housing

services measure the rents paid by all tenants

(and the equivalent rent implicitly paid by all

homeowners)—including those whose leases

have not yet come up for renewal—they tend

to adjust slowly to changes in rental market

conditions. The softening in market rents

therefore points to a continued deceleration in

housing services prices over the year ahead.

Prices for nonhousing core services—a

broad group that includes services such as

travel and dining, nancial services, and car

repair—rose 3.5percent in the 12 months

ending in January, down from their recent

peak of 5.2percent (gure4, right panel).

As labor costs are a signicant input in these

service sectors, the ongoing softening of labor

demand and improvements in labor supply

should contribute to a further slowing in core

services price ination as labor cost growth

moderates.

Nonmanufacturing

Diusion index

20242023202220212020201920182017

6. Suppliers’ delivery times

Monthly

Manufacturing

NOTE: Values greater than 50 indicate that more respondents reported

longer delivery times relative to a month earlier than reported shorter

delivery times.

OURCE: Institute for Supply Management, Report on Business, via

Haver Analytics.

Percent change from year earlier

202420222020201820162014

7. Nonfuel import price index

Monthly

OURCE

: Bureau of Labor Statistics via Haver Analytics.

Zillow

RealPage

CoreLogic single-family detached

1.0

1.5

2.0

2.5

Percent change from month earlier

202420232022202120202019

8. Housing rents

Monthly

NOTE: CoreLogic data extend through December 2023. Zillow,

CoreLogic, and RealPage measure market-rate rents—that is, rents for a

new lease by a new tenant.

OURCE: Bureau of Economic Analysis, PCE, via Haver Analytics;

CoreLogic, Inc.; Zillow, Inc.; RealPage, Inc.; Federal Reserve Board sta

calculations.

PCE housing services

8 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Measures of longer-term ination

expectations have been stable, while

shorter-term expectations have

fallenback

The generally held view among economists and

policy analysts is that ination expectations

inuence actual ination by aecting wage-

and price-setting decisions. Survey-based

measures of expected ination over a longer

horizon have generally been moving sideways

over the past year, within the range seen during

the decade before the pandemic, and they

appear broadly consistent with the FOMC’s

longer-run 2percent ination objective. This

development is seen for surveys of households,

such as the University of Michigan Surveys

of Consumers, and for surveys of professional

forecasters (gure9). For example, the median

forecaster in the Survey of Professional

Forecasters, conducted by the Federal Reserve

Bank of Philadelphia, continued to expect

PCE price ination to average 2percent over

the ve years beginning ve years fromnow.

Moreover, ination expectations over a shorter

horizon—which tend to follow observed

ination more closely—have been reversing

their earlier run-ups. In the Michigan survey,

the median value for ination expectations

over the next year was 3.0percent in February,

well below the peak rate of 5.4percent

observed in spring 2022. Expected ination

for the next year as measured in the Survey

of Consumer Expectations, conducted by

the Federal Reserve Bank of New York, has

also declined, on net, over this period and has

returned to the range of values seen before

thepandemic.

Market-based measures of longer-term

ination compensation, which are based on

nancial instruments linked to ination such

as Treasury Ination-Protected Securities,

are also broadly in line with readings seen in

the years before the pandemic and consistent

with ination returning to 2percent. These

measures have been little changed, on net,

since last summer (gure10).

SPF, next 10 years

Michigan survey, next 5 to 10 years

SPF, 6 to 10 years ahead

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Percent

202420222020201820162014201220102008

9. Measures of ination expectations

NOTE: The Survey of Professional Forecasters (SPF) data are

quarterly and extend through 2024:Q1. The data for the Michigan surve

are monthly and extend through February 2024; the February data are

preliminary.

OURCE

: University of Michigan Surveys of Consumers; Federal

Reserve Bank of Philadelphia, SPF.

Michigan survey, next 12 months

5-year

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Percent

202420232022202120202019201820172016

10. Ination compensation implied by Treasury

Ination-Protected Securities

Daily

5-to-10-year

OTE:The data are at a business-day frequency and are estimated

from smoothed nominal and ination-indexed Treasury yield curves.

OURCE: Federal Reserve Bank of New York; Federal Reserve Board

sta calculations.

MONETARY POLICY REPORT: MARCH 2024 9

Black or African American

Asian

Hispanic or Latino

Percent

2024202220202018201620142012201020082006

13. Unemployment rate, by race and ethnicity

Monthly

White

OTE

: Unemployment rate measures total unemployed as a percentage of the labor force. Persons whose ethnicity is identied as Hispanic or Latino

may

be of any race. Small sample sizes preclude reliable estimates for Native Americans and other groups for which monthly data are not reported b

the Bureau of Labor Statistics.

OURCE

: Bureau of Labor Statistics via Haver Analytics.

The labor market remains strong

Payroll employment gains have been robust,

averaging 239,000 since June of last year.

The pace of job gains has nevertheless been

softening, having averaged more than 375,000

per month in 2022 and about 290,000 in the

rst half of 2023 (gure11). This slowing

has come primarily from the professional and

business services, manufacturing, and leisure

and hospitality sectors, which tend to be

cyclically sensitive. In contrast, employment

growth has remained strong in the health-

care and social assistance sector and at state

and local governments, which tend to be less

cyclically sensitive and are still recovering from

pandemic-era stang shortages.

The unemployment rate edged up, on net,

since the middle of last year, but at 3.7percent

in January, it is only slightly above its pre-

pandemic level and remains very low by

historical standards (gure12). Indeed,

unemployment rates among most age,

educational attainment, sex, and ethnic and

racial groups are near their respective historical

lows (gure13). (The box “Employment

and Earnings across Demographic Groups”

provides further details.)

100

200

300

400

500

600

700

800

Thousands of jobs

2024202320222021

11. Nonfarm payroll employment

Monthly

OTE

: The data shown are a 3-month moving average of the change in

nonfarm payroll employment.

OURCE

: Bureau of Labor Statistics via Haver Analytics.

Percent

2024202220202018201620142012201020082006

12. Civilian unemployment rate

Monthly

OURCE

: Bureau of Labor Statistics via Haver Analytics.

10 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

workers was also historically high in early 2023,

although it has since moved down closer to its

2019level.

Similarly, the EPOP ratio for prime-age women

increased steadily over the past two years and reached

a record high in 2023 ( gureA, right panel). As a

result, the EPOP ratio gap between prime-age men

and women fell to a record low. The recent increase in

female employment is mostly attributable to rising labor

force participation, which had also been increasing

briskly before the pandemic, bolstered by a growing

share of women with a college degree.

Other factors,

including tight labor market conditions and greater

availability of remote-work options, may have also

contributed to rising prime-age female labor force

participation.

3. As monthly series have greater sampling variability

for smaller groups, we do not plot EPOP ratio estimates for

American Indians or Alaska Natives.

4. For a discussion of the contribution of educational

attainment to prime-age female labor force participation

before the pandemic, see Didem Tüzemen and Thao Tran

(2019), “The Uneven Recovery in Prime-Age Labor Force

Participation,” Federal Reserve Bank of Kansas City,Economic

Review, vol. 104 (Third Quarter), pp. 21–41, https://www.

kansascityfed.org/Economic%20Review/documents/652/2019-

The%20Uneven%20Recovery%20in%20Prime-Age%20

Labor%20Force%20Participation.pdf.

5. For a discussion on access to remote work and

participation rates, see Maria D. Tito (2024), “Does the

Ability to Work Remotely Alter Labor Force Attachment?

An Analysis of Female Labor Force Participation,” FEDS

Notes (Washington: Board of Governors of the Federal

Reserve System, January19), https://doi.org/10.17016/2380-

7172.3433.

Economic expansions have tended to narrow long-

standing disparities in employment and earnings across

demographic groups, which can help make up for

disproportionate losses experienced during downturns.

These bene ts have been especially pronounced during

the current expansion, which has been characterized

by an exceptionally tight labor market and robust

demand for workers over the past two years.

Among prime-age individuals (ages 25 to 54),

employment for Black or African American workers,

which declined more relative to white and Asian

workers in early 2020, reached a historical peak in

2023 ( gureA, left panel). As a result, the gap in the

employment-to-population (EPOP) ratio between

prime-age Black and white workers fell to its lowest

point in almost 50years.

Hispanic or Latino workers

experienced especially large employment losses in

2020, due in part to greater exposure to the industries

most affected by the pandemic.

By early 2022,

however, this group’s EPOP ratio gap relative to prime-

age white workers had recovered to its 2019 average

and has remained near this historically low level for the

past two years. The EPOP ratio for prime-age Asian

1. In fact, for the population aged 16 or older, the

EPOP ratio was the same for Black and white individuals

in January2024 (not shown). This equivalence, however,

partly re ects the fact that these groups have different age

distributions, with whites older, on average, and thus more

likely to be retired.

2. On the relationship between occupation, industry, and

the differential effect of the COVID-19 pandemic across

demographic groups, see Guido Matias Cortes and Eliza

Forsythe (2023), “Heterogeneous Labor Market Impacts of the

COVID-19 Pandemic,” ILR Review, vol. 76 (January), pp.30–55.

(continued)

Employment and Earnings across Demographic Groups

Black or African American

Men, some college or more

Men, high school or lessAsian

Hispanic or Latino

Percentage points

20232022202120202019

Race and ethnicity

Monthly

NOTE: The data extend through December 2023. Prime age is 25 to 54. All series are seasonally adjusted by the Federal Reserve Board sta.

SOURCE: Bureau of Labor Statistics; U.S. Census Bureau, Current Population Survey; Federal Reserve Board sta calculations.

White

Percentage points

20232022202120202019

Sex and educational attainment

Monthly

Women, some college or more

Women, high school or less

A. Prime-age employment-to-population ratios compared with the 2019 average ratio, by group

MONETARY POLICY REPORT: MARCH 2024 11

two years have also led to strong nominal wage growth,

especially for groups at the lower end of the earnings

distribution. As shown in the top-left panel of  gureC,

real wage growth—as measured by the Federal Reserve

Bank of Atlanta’s Wage Growth Tracker and de ated by

the personal consumption expenditures price index—

has been consistently stronger for workers in lower

wage quartiles.

Stronger wage growth at the bottom of the income

distribution is re ected in the experiences of different

education and demographic groups. In the  rst two

years of the recovery, real wage growth was stronger

for workers with a high school diploma or less relative

to workers with a bachelor’s degree or more ( gureC,

top-right panel) and, in the past two years, has also

been stronger for nonwhite workers relative to white

workers ( gureC, bottom-left panel). Wages for men

and women, by contrast, have largely grown in tandem

( gureC, bottom-right panel).

In addition to the

in uence of a tight labor market, differences in wage

9. To reduce noise due to sampling variation, which can

be pronounced when considering disaggregated groups’

wage changes, the series shown in  gure C are the 12-month

moving averages of the groups’ median 12-month real wage

changes. Thus, by construction, these series lag the actual real

wage changes.

10. The measure of real earnings growth shown in the

 gure uses the same price index for all groups, but in ation

experiences can differ across demographic groups because

of differences in what they purchase or where they shop.

See Jacob Orchard (2021), “Cyclical Demand Shifts and

Cost of Living Inequality,” working paper, February (revised

September2022).

Robust labor demand over the past two years has

also reversed pandemic-induced employment losses

across education groups. For both prime-age men

and women, the EPOP ratio fell signi cantly more for

workers with a high school diploma or less compared

with those with at least some college education, largely

re ecting industry exposure to pandemic-related

closures or some differences in the ability to work

remotely across jobs. Notably, the EPOP ratio declined

similarly for men and women with the same education

level, a result that contrasts with those in previous

recessions, in which male EPOP losses have historically

outpaced female losses.

The unusually large effect on

women during the pandemic also re ects the industry

composition of job losses, as well as caregiving needs.

While employment disparities across many

demographic groups are now within historically narrow

ranges, substantial gender, racial, and ethnic gaps

remain, underscoring long-standing structural factors.

Currently, prime-age women are employed at a rate

11percentage points less than men, while prime-age

Black and Hispanic workers are employed at a rate

3 to 4percentage points less than white workers.

Further, the differential effect of the pandemic on

the employment of older workers has proven highly

persistent. The EPOP ratio for workers aged 55 or older

remains approximately 2percentage points below its

pre-pandemic level and has changed little since late

2021 ( gureB). This shortfall is wholly attributable to

decreases in labor force participation stemming from

increased retirements concentrated among workers

aged 60 or older.

In addition to narrowing many employment gaps,

historically tight labor market conditions over the past

6. See Claudia Goldin (2022), “Understanding the

Economic Impact of COVID-19 on Women,” Brookings Papers

on Economic Activity, Spring, pp. 65–110, https://www.

brookings.edu/wp-content/uploads/2022/03/16265-BPEA-

Sp22_Goldin_WEB-Appendix.pdf; and Stefania Albanesi and

Jiyeon Kim (2021), “Effects of the COVID-19 Recession on the

US Labor Market: Occupation, Family, and Gender,” Journal of

Economic Perspectives, vol. 35 (Summer), pp. 3–24.

7. On the role of caregiving, see Joshua Montes,

Christopher Smith, and Isabel Leigh (2021), “Caregiving for

Children and Parental Labor Force Participation during the

Pandemic,” FEDS Notes (Washington: Board of Governors

of the Federal Reserve System, November5), https://www.

federalreserve.gov/econres/notes/feds-notes/caregiving-for-

children-and-parental-labor-force-participation-during-the-

pandemic-20211105.html.

8. For an analysis on the increase in retirements following

the pandemic, see Joshua Montes, Christopher Smith, and

Juliana Dajon (2022), “ ‘The Great Retirement Boom’: The

Pandemic-Era Surge in Retirements and Implications for Future

Labor Force Participation,” Finance and Economics Discussion

Series 2022-081 (Washington: Board of Governors of the

Federal Reserve System, November), https://doi.org/10.17016/

FEDS.2022.081.

Ages 16 to 24

Ages 55+

Percentage points

20232022202120202019

B. Employment-to-population ratios relative to 2019

average, by age

Monthly

Ages 25 to 54

OTE

: The data extend through December 2023. Data before Januar

2023

are estimated by Federal Reserve Board sta in order to eliminat

discontinuities in the published history.

OURCE

:Bureau of Labor Statistics; U.S. Census Bureau, Curren

Population Survey; Federal Reserve Board sta calculations.

(continued on next page)

12 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

growth across groups have narrowed considerably.

While the labor market is still tight by historical

standards, factors disproportionately boosting wage

growth for the lowest earners have largely faded. In

2023, nominal wage growth slowed for workers with

below-median earnings but stepped up for workers

above the median. Even so, the gaps in relative wages

between workers in the  rst three quartiles and those

in the highest quartile continue to close, albeit at a

slowerpace.

growth across groups partially re ect factors speci c

to the post-pandemic recovery, such as the sectoral

composition of labor demand and supply. Wages, for

instance, grew faster than average in the leisure and

hospitality industry, a relatively low-wage sector that

suffered disproportionate employment losses during

the pandemic, followed by a surge in vacancies that

employers struggled to  ll as the economy reopened.

Over the past year, real wages have been rising for

all groups shown here, and differences in real wage

Employment and Earnings (continued)

4th quartile

High school or less

1st quartile3rd quartile

Bachelor’s degree or more

Percent

20232022202120202019

Wage quartiles

Monthly

2nd quartile

Percent

20232022202120202019

Educational attainment

Monthly

Associate’s degree

C. Median real wage growth, by group

White

Men

Percent

20232022202120202019

Race

Monthly

Nonwhite

Percent

20232022202120202019

Sex

Monthly

OTE

: The data extend through December 2023. Series show 12-month moving averages of the median percent change in the hourly wage o

individuals

observed 12 months apart, deated by the 12-month moving average of the 12-month percent change in the personal con

sumption

expenditures

price index. In the top-left panel, workers are assigned to wage quartiles based on the average of their wage reports in both

Current

Population Survey outgoing rotation group interviews; workers in the lowest 25 percent of the average wage distribution are ass

igned to the 1st quartile,

and those in the top 25 percent are assigned to the 4th quartile.

OURCE

: Federal Reserve Bank of Atlanta, Wage Growth Tracker; Bureau of Labor Statistics; U.S. Census Bureau, Current Population Survey.

Women

MONETARY POLICY REPORT: MARCH 2024 13

Labor demand has been gradually

cooling. . .

Demand for labor continued to cool last year

but remains robust. The Job Openings and

Labor Turnover Survey (JOLTS) indicated

that there were nearly 9million job openings

at the end of 2023—down about 3million

from the all-time high recorded in March2022

but still around 2million above pre-pandemic

levels. An alternative measure of job vacancies

constructed by the Federal Reserve Board

sta using job postings data from the large

online job board Indeed also shows that

vacancies continued to move gradually

lower through mid-February but remained

above pre-pandemic levels. In addition,

measures of layos, such as initial claims

for unemployment insurance and the rate of

layos and discharges in the JOLTS, have

remained very low by historical standards.

. . . and labor supply has increased

further . . .

Meanwhile, the supply of labor has

continued to increase on net. The labor force

participation rate, which measures the share of

people either working or actively seeking work,

continued to trend higher for most of last year

but has softened in recent months (gure14).

Importantly, labor force participation for

prime-age workers increased notably through

last September and, although it has edged

down more recently, remains above its pre-

pandemic level.

Labor supply was also boosted last year by

relatively strong population growth. The

Census Bureau estimates that the resident

population increased 1.7million (0.5percent)

in 2023, with almost 70percent of that

increase coming from immigration.

Last

2. A recent report from the Congressional Budget

Oce estimates that immigration has been considerably

higher than in the Census Bureau’s estimates in recent

years; see Congressional Budget Oce (2024), The

Demographic Outlook: 2024 to 2054 (Washington: CBO,

January), https://www.cbo.gov/publication/59697. The

labor force estimates published by the Bureau of Labor

Statistics are based on the civilian noninstitutionalized

population aged 16 or older, which constitutes about

80percent of the resident population.

Ages 25 to 54

Percent

2024202220202018201620142012201020082006

14. Labor force participation rate, by age

Percent

Ages 16+

OTE: The labor force participation rate is a percentage of the relevant

population. Data are monthly, and values before January 2023 are

estimated by Federal Reserve Board sta in order to eliminate

discontinuities in the published history.

OURCE: Bureau of Labor Statistics via Haver Analytics; U.S. Census

Bureau; Federal Reserve Board sta calculations.

14 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

year’s rate of population growth was slightly

faster than in 2022 and about twice as fast as

in 2020 and 2021, when growth was held down

by COVID-19-related increases in mortality

and restrictions on immigration. Although

population growth has largely returned to its

pace from the years preceding the pandemic,

it remains well below its average from

1990 to2015.

. . . but the labor market remains

relatively tight

Even with easing labor demand and rising

labor supply, the labor market remains

relatively tight. Some indicators suggest that

the labor market remains tighter than before

the pandemic, while others have returned

to their 2019 ranges, when the labor market

was also relatively tight. The number of total

available jobs (measured by employed workers

plus job openings) still exceeds the number

of available workers (measured by the labor

force). This jobs–workers gap was around

2.8million in December, down markedly from

its peak of 6.0million recorded in March2022

but still above its 2019 average of 1.1million

(gure15).

In contrast, the percentage of

workers quitting their jobs each month, an

indicator of the availability of attractive job

prospects, was 2.2percent in December, close

to its 2019 average. Surveys indicate that

households’ and small businesses’ perceptions

of labor market tightness have also come down

from their recent peaks. In addition, business

contacts in nearly all Federal Reserve Districts

cited signs of a cooling labor market, such

as larger applicant pools and lower turnover

rates; however, some employers continued to

report diculty nding workers, particularly

employers seeking specialized skills.

3. The ratio of job openings to unemployment shows

that there were 1.4job openings per unemployed person

in December2023. For comparison, this ratio averaged

1.2 in 2019 and 0.6 over the 10-year period from 2010

to2019.

4. See the January2024 Beige Book, available on

the Board’s website at https://www.federalreserve.gov/

monetarypolicy/publications/beige-book-default.htm.

Available workers

135

140

145

150

155

160

165

170

175

Millions

2023202120192017201520132011200920072005

15. Available jobs versus available workers

Monthly

OTE

: The data extend through December 2023. Available jobs are

employment plus job openings as of the end of the previous month.

Available workers are the labor force. Data for employment and labor

force before January 2023 are estimated by Federal Reserve Board sta

in order to eliminate discontinuities in the published history.

OURCE

: Bureau of Labor Statistics via Haver Analytics; U.S. Census

Bureau; Federal Reserve Board sta calculations.

Available jobs

MONETARY POLICY REPORT: MARCH 2024 15

Wage growth has slowed but

remainselevated

Consistent with the easing in labor market

tightness, nominal wage growth slowed in 2023

but remains elevated (gure16). Total hourly

compensation as measured by the employment

cost index increased 4.2percent over the

12months ending in December, a noticeable

slowing from the 5.1percent increase in 2022.

Other aggregate measures, such as average

hourly earnings (a less comprehensive measure

of compensation) and the Federal Reserve

Bank of Atlanta’s Wage Growth Tracker,

which reports the median 12-month wage

growth of individuals responding to the

Current Population Survey, have slowed as

well. With PCE prices having risen 2.6percent

in 2023, these measures suggest that most

workers saw increases in the purchasing power

of their wages over the pastyear.

Labor productivity strengthened last year

The extent to which nominal wage gains raise

rms’ costs and act as a source of ination

pressure depends importantly on the pace of

productivity growth. Labor productivity in the

business sector has been extremely variable

since the pandemic began, increasing sharply

in 2020 and then declining, on average, over

2021 and 2022 (gure17). Productivity is

reported to have risen a robust 2.7percent

last year. When averaged over the pandemic

period, output per hour rose at a moderate

average annual rate of 1½percent, in line with

the average rate of growth observed during the

business cycle from the fourth quarter of 2007

to the fourth quarter of 2019.

As always, the pace of future productivity

growth remains highly uncertain. It is possible

that productivity growth could remain at

around this same moderate pace. However,

it is also possible that the rapid adoption of

new technologies like articial intelligence

and robotics—as well as the high rate of new

business formation that the pandemic brought

about—could boost productivity growth above

that pace in coming years.

Average hourly earnings, private sector

Employment cost index, private sector

Percent change from year earlier

20242023202220212020201920182017

16. Measures of change in hourly compensation

Atlanta Fed’s Wage Growth Tracker

NOTE: For the private-sector employment cost index, change is over

the

12 months ending in the last month of each quarter; for

private-sector

average hourly earnings, the data are 12-month percent changes; for

the

Atlanta Fed’s Wage Growth Tracker, the data are shown as a

3-month

moving average of the 12-month percent change.

SOURCE

: Bureau of Labor Statistics; Federal Reserve Bank of Atlanta,

Wage Growth Tracker; all via Haver Analytics.

100

102

104

106

108

110

112

2017 average = 100

202320212019201720152013

17. U.S. labor productivity

Quarterly

NOTE: The data are output per hour in the business sector.

SOURCE: Bureau of Labor Statistics via Haver Analytics.

16 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Gross domestic product rose at a solid

pace last year

Real gross domestic product (GDP) is

reported to have increased at an annual rate

of 4.0percent in the second half of 2023,

up from 2.2percent in the rst half. For

2023 as a whole, GDP increased 3.1percent,

notably faster than in 2022 despite restrictive

nancial conditions, including elevated longer-

term interest rates (gure18).

Among the

components of GDP, consumer spending rose

solidly in the second half of last year, and

residential investment started to turn back up

following its earlier sharp declines, but growth

of business investment slowed.

In contrast to GDP, manufacturing output

was little changed, on net, last year, a

downshift following two years of robust post-

pandemic gains. Motor vehicle production

continued to rebound from supply chain

disruptions in 2021 and 2022, although last

year’s production was held down by strikes at

several major automakers. Outside of motor

vehicles, industrial production generally

moved sideways last year, but it was down

from its post-pandemic peak in early 2022,

as inventories normalized and new orders

fellback.

Consumer spending growth was resilient

even as household nances deteriorated

Consumer spending adjusted for ination grew

at a solid rate of 3.0percent in the second half

of 2023 and 2.7percent for last year as a whole

(gure19). Consumers’ resilience in the face

5. Real gross domestic income (GDI) has been

notably weaker than GDP in recent quarters; both series

measure the same economic concept, and any dierence

between the two gures reects measurement error. GDI

reportedly increased at a 0.8percent pace in the rst three

quarters of last year after having been unchanged over

the four quarters of 2022—well below the corresponding

gures for GDP. As a result, productivity calculated from

the income side of the national accounts would also be

considerably weaker than the published gures over the

past couple of years.

Percent, annual rate

20232022202120202019201820172016

18. Change in real gross domestic product and gross

domestic income

OTE

: The data for gross domestic income extend through 2023:H1.

The key identies bars in order from left to right.

OURCE

: Bureau of Economic Analysis via Haver Analytics.

Gross domestic product

Gross domestic income

Percent, annual rate

20232022202120202019201820172016

19. Change in real personal consumption expenditures

OURCE

: Bureau of Economic Analysis via Haver Analytics.

MONETARY POLICY REPORT: MARCH 2024 17

of tight nancial conditions was supported

by the strong labor market and rising real

incomes. Indeed, after declining, on average,

in 2021 and 2022, real disposable personal

income increased robustly last year. However,

last year’s spending was also accompanied by

households drawing down their liquid assets,

such as checking accounts, and by relying

more on credit. Indeed, the saving rate was

3.9percent in the fourth quarter of 2023,

well below pre-pandemic levels (gure20). In

addition, although household wealth relative

to income remains high in the aggregate, it has

declined, on net, since the end of 2021 and so

is likely providing less support to consumer

spending. Consumer spending since the

pandemic has been more robust than measures

of consumer sentiment would suggest.

Although sentiment in the Michigan survey

has improved markedly in recent months, it

remains much further below its pre-pandemic

level than does a similar measure from the

Conference Board, which puts more weight on

labor market conditions (gure21).

Consumer nancing conditions tightened

last year

Credit remains available for most consumers,

though interest rates on both credit cards

and auto loans remain higher than the levels

observed in 2018 at the peak of the previous

monetary policy tightening cycle. Indeed,

interest rates on credit cards have continued

to increase since the rst half of last year. In

addition, banks reported continued tightening

of lending standards across consumer

credit products, in part reecting lenders’

concerns about further deterioration in

credit performance and higher funding costs.

Delinquency rates for credit cards rose further

over the second half of 2023, while those for

auto loans attened out; both rates are notably

above levels observed just before the pandemic.

Reecting these and other factors, consumer

credit expanded moderately during the second

half of last year, driven by robust growth in

credit card balances and modest growth in

PercentMonthly

2023202220212020201920182017201620152014

20. Personal saving rate

NOTE: The data extend through December 2023.

OURCE

: Bureau of Economic Analysis via Haver Analytics.

Michigan survey

100

110

February 1966 = 100

105

125

145

2024202220202018201620142012201020082006

1985 average = 100

21. Indexes of consumer sentiment

Conference Board

OTE: The data are monthly and extend through February 2024. The

February data for the Michigan survey are preliminary.

OURCE: University of Michigan Surveys of Consumers; Conference

Board.

18 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

auto loans (gure22). In contrast, student

loan balances fell in the second half of last

year, in large part driven by the cancellation

of debt for certain borrowers in income-driven

repayment plans.

Residential investment turned around and

grew modestly in the second half of 2023

After declining steeply in 2022 on the heels of

the substantial rise in mortgage interest rates,

residential investment fell a bit further in the

rst half of 2023 but picked up in the second

half of the year. The pickup in housing activity

since mid-2023 masked some important

dierences across components of the market,

with sales of existing homes much weaker than

sales of new homes and with construction of

single-family homes remaining relatively solid

while multifamily construction declined. (The

box “Recent Housing Market Developments”

provides further discussion.)

Capital spending growth softened amid

tighter nancial conditions and subdued

sentiment

Tighter nancial conditions and downbeat

business sentiment led to a slowdown in

business investment spending growth in the

second half of 2023 (gure23). Equipment

investment spending declined in the second

half of the year, while investment in

intellectual property products—which include

software and research and development—

continued to decelerate from its solid pace

of growth over the previous few years.

Investment in nonresidential structures, which

had surged in early 2023 because of a boom

in manufacturing construction—especially

for factories that produce semiconductors or

electric vehicle batteries—also decelerated in

the second half of 2023, although the level of

structures investment remained much higher

than in previous years. Although indicators

of business sentiment and prot expectations

have improved in recent months, sentiment

remains subdued.

Percent, annual rate

20232022202120202019201820172016

23. Change in real business xed investment

OTE

: Business xed investment is known as “private nonresidential

xed investment” in the national income and product accounts. The

key

identies bars in order from left to right. Equipment and intangible

capital investment was little changed in 2023:H2.

OURCE

: Bureau of Economic Analysis via Haver Analytics.

Structures

Equipment and intangible capital

Billions of dollars, monthly rate

2023202220212020201920182017201620152014

22. Consumer credit ows

OTE

: Student loan balances were little changed in 2023:H1.

OURCE

: Federal Reserve Board, Statistical Release G.19, “

Consumer

Credit.”

Student loans

Auto loans

Credit cards

MONETARY POLICY REPORT: MARCH 2024 19

However, several other factors have supported

underlying demand for housing, somewhat limiting

the effect of higher mortgage rates. First, the labor

market has remained strong, with historically low

unemployment and real wage growth turning positive

last year. Second, households may still be gradually

adjusting to long-term remote or hybrid work  exibility

by seeking additional space. Third, a rising fraction of

buyers have been able to purchase homes with cash

rather than taking out mortgages. The share of homes

purchased with cash was about 15percent in 2020 and

increased to about 25percent in 2023, with the drop in

home sales concentrated in mortgage borrowers.

Housing supply has also faced constraints, due

to both short- and long-term factors. In the short

term, higher interest rates and tighter underwriting

by banks signi cantly increased builders’ costs of

 nancing, discouraging new construction. In the long

term, despite a surge in construction in late 2020 and

2021, it appears that a variety of factors—including

zoning and other regulatory hurdles—have prevented

construction from keeping up with underlying demand,

resulting in a gross housing vacancy rate that is at a

historical low.

2. See Joseph Gyourko and Raven Molloy (2015),

“Chapter19—Regulation and Housing Supply,” Handbook of

Regional and Urban Economics, vol. 5, pp. 1289–337.

The rise in mortgage interest rates since early 2022

has reduced the overall demand for housing and

slowed activity in the housing sector appreciably.

The change in mortgage rates was unusually large

and rapid, with 30-year  xed rates rising from about

3.2percent in January2022 to almost 8percent in

October2023, the highest level since 2000 ( gureA).

Although mortgage rates have declined somewhat

since October, they still averaged around 7percent in

February 2024.

The run-up in mortgage rates through late 2023,

combined with a further rise in house prices, resulted

in a sharp increase in typical mortgage payments and

has reduced housing demand and home sales. The

median monthly principal and interest payment on

newly originated home-purchase mortgages for owner-

occupied properties increased from below $1,400 in

January2022 to around $1,800 in early 2023 and has

remained around that elevated level ( gureB). As a

result, home sales (including both new and existing

properties) have fallen sharply over the past two years.

Home purchases by low-income households have

fallen disproportionately more, because mortgage

lenders impose maximums on the ratio of a borrower’s

debt service payments to the borrower’s income.

1. See Daniel Ringo (2022), “Declining Affordability and

Home Purchase Borrowing by Lower Income Households,”

FEDS Notes (Washington: Board of Governors of the Federal

Reserve System, July8), https://doi.org/10.17016/2380-

7172.3160.

Recent Housing Market Developments

(continued on next page)

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Dollars

202420232022202120202019

B. Median monthly mortgage payments

Monthly

NOTE:The data shown are median monthly scheduled principal and

interest

payments on home purchase mortgages for owner-occupied

properties

by month of rate lock. The Optimal Blue data are aggregated

and

anonymized. The data do not contain lender or customer identities

or complete rate sheets.

OURCE

: Optimal Blue LLC, Optimal Blue Mortgage Price Data.

Percent

202420222020201820162014

A. Mortgage interest rates

Weekly

NOTE: The data are contract rates on 30-year, xed-rate

conventional

home mortgage commitments and extend through February 22, 2024.

SOURCE: Freddie Mac Primary Mortgage Market Survey via H

aver

Analytics.

20 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Recent Housing Market Developments (continued)

have interest rates below 4percent ( gureE). If these

homeowners with low mortgage rates want to move

to a different home with a new mortgage, their new

mortgage payment would be much higher. As a result,

many homeowners who might otherwise have moved

have instead opted to remain in their current home. The

net effect has been an unusually thin market for existing

homes, with a dramatic reduction in the number of

people both selling and bidding on homes. The decline

in the supply of existing homes for sale also makes it

dif cult for the remaining buyers in the market to  nd

their preferred home and may be driving some to the

new home market even as overall sales are depressed.

New homebuilders have also been able to offer buyers

The recent performance of home prices re ects this

interplay between housing demand and supply. House

price growth slowed rapidly from its historically high

pace in response to the jump in interest rates, but it

has bounced back recently on a year-over-year basis,

leaving house price levels near record highs ( gureC).

The interplay between demand and supply has

played out quite differently across segments of the

housing market. In particular, the contrast between

the evolution of new and existing home sales has

been notable ( gureD). Many households purchased

homes or re nanced when  xed mortgage rates were

at historically low levels in 2020 and 2021, and,

as a result, the majority of outstanding mortgages

(continued)

Zillow

CoreLogic

Percent change from year earlier

20242019201420092004199919941989

C. Growth rate in house prices

Monthly

OTE

: CoreLogic and S&P/Case-Shiller data extend through

December 2023.

OURCE

: CoreLogic, Inc., Home Price Index; Zillow, Inc., Real Estat

Data;

S&P/Case-Shiller U.S. National Home Price Index. The

S&P/Case-Shiller

index is a product of S&P Dow Jones Indices LLC

and/or

its aliates. (For Dow Jones Indices licensing information, see

the note on the Contents page.)

S&P/Case-Shiller

Existing home sales

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Millions, annual rate

1.0

1.2

1.4

2024202220202018201620142012201020082006

D. New and existing home sales

Millions, annual rate

New home sales

OTE: The data are monthly. New and existing home sales

include

only single-family sales.

SOURCE: For new home sales, U.S. Census Bureau; for existing hom

sales, National Association of Realtors; all via Haver Analytics.

MONETARY POLICY REPORT: MARCH 2024 21

Single-family permits

Multifamily starts

1.0

1.2

1.4

Millions of units, annual rate

202420222020201820162014201220102008

F. Private housing starts and permits

Monthly

OURCE

: U.S. Census Bureau via Haver Analytics.

Single-family starts

properties remained strong through 2022 even as

single-family construction declined sharply. Unlike the

cost of buying a home, rental demand is not directly

harmed by higher mortgage rates and may even be

supported, to some extent, by a shift away from home

purchases as rates rise. Multifamily projects also take

signi cantly longer to plan and build than single-family

projects and are slower to react to changing economic

conditions. Over the past year, we have seen more new

properties delivered to the market, which contributed to

increases in multifamily vacancy rates and a signi cant

deceleration in market rents. These developments,

combined with concerns about the effect of the large

amount of new supply still scheduled to be delivered to

market over the next year, have started to drive down

prices of existing multifamily properties. As a result,

the rate of new multifamily construction has come

back down over the past year even as single-family

construction has picked back up.

signi cant incentives while still maintaining positive

pro t margins. The relative strength in the new home

demand has encouraged builders to increase the rate

of new construction after having sharply pulled back in

2022 when rates  rst started to rise ( gureF).

The balance between supply and demand in the

multifamily market—which is dominated by rental

units—is fundamentally different from that in the

single-family market. Initially, as the pandemic eased,

market rents surged along with single-family home

prices in response to the increased demand for living

space, whether owned or rented. These higher rents

encouraged a dramatic increase in multifamily starts

from what were already quite strong historical levels,

averaging 510,000 units per year in 2021 and 2022,

compared with an average of 314,000 units per year

from 2000 to 2020. Construction of multifamily

Below 5 percent

Below 6 percent

100

Percent

2023202120192017201520132011

E. Distribution of interest rates on outstanding mortgages

Monthly

Below 4 percent

OTE

: The data extend through November 2023. The sample only

includes outstanding mortgages current on their payments.

OURCE

: Black Knight McDash.

22 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Business nancing conditions were

moderately restrictive overall, but credit

remained generally available

Credit remained generally available to most

nonnancial corporations but at elevated

interest rates and amid moderately restrictive

nancial conditions overall. Banks continued

to tighten lending standards for all loan

types over the second half of last year, and

business loan growth at banks continued

to slow. In contrast, issuance of corporate

bonds remained solid across credit categories,

although well below the levels prevailing at the

beginning of the tightening cycle.

For small businesses, which are more reliant

on bank nancing than large businesses, credit

conditions tightened further over the second

half of last year. Surveys indicate that credit

supply for small businesses has tightened

further, and interest rates on loans to small

businesses moved higher and now stand near

the top of the range observed since 2008.

Loan default and delinquency rates have also

increased and now slightly exceed their pre-

pandemic rates.

Trade recovered in the second half

of2023

Real imports remained relatively unchanged

for the year as a whole after declining in the

rst half of last year and then recovering over

the second half as domestic demand picked up

(gure24). Despite lackluster foreign growth,

exports picked up more strongly than imports

over the second half of the year. As such, net

exports added about 0.3percentage point to

GDP growth in the fourth quarter of 2023

after being neutral for growth in the previous

two quarters. The current account decit

narrowed slightly in the third quarter of 2023

to 2.9percent of GDP, remaining larger than

before the pandemic.

Federal scal policy actions were roughly

neutral for GDP growth in 2023

Federal purchases grew modestly in 2023, and

several recently enacted policies began to boost

Percent, annual rate

20232022202120202019201820172016

24. Change in real imports and exports of goods

and services

OURCE

: Bureau of Economic Analysis via Haver Analytics.

Imports

Exports

MONETARY POLICY REPORT: MARCH 2024 23

investment and consumption. This support

to economic activity was about oset by the

unwinding of the remaining pandemic-related

scal policy support. All told, the contribution

of discretionary changes in federal scal policy

to real GDP growth was roughly neutral

lastyear.

The budget decit and federal debt

remain elevated

After surging to 15percent of GDP in scal

year 2020, the budget decit declined through

2022 as the imprint of the pandemic faded

(gure25). The budget decit edged up to

6.3percent of GDP in scal 2023 as tax

receipts declined from their elevated level in

2022 and net interest outlays increased.

As a result of the unprecedented scal

support enacted early in the pandemic, federal

debt held by the public jumped roughly

20percentage points to 100percent of GDP

in scal 2020—the highest debt-to-GDP ratio

since 1947 (gure26). After falling slightly

through 2022, the debt-to-GDP ratio edged up

in 2023, as rising interest rates contributed to

higher net interest outlays. The Congressional

Budget Oce projects that further increases

in interest costs, along with positive primary

decits—that is, total decits less interest

payments—will produce a steady rise in the

debt-to-GDP ratio in the years to come.

Most state and local government budget

positions remained strong . . .

Federal policymakers provided a historically

high level of scal support to state and local

governments during the pandemic; this aid,

together with robust state tax collections in

2021 and 2022, left the sector in a strong

6. The growth of the decit between scal years 2022

and 2023 would have been larger had it not been for the

Administration’s announced student debt relief program,

which raised the scal 2022 decit $380billion, and the

Supreme Court’s reversal of the policy, which lowered it

$330billion in scal 2023.

Expenditures

Percent of nominal GDP

202320202017201420112008200520021999

Annual

25. Federal receipts and expenditures

Receipts

OTE: The receipts and expenditures data are on a unied-budget

basis and are for scal years (October through September); gross

domestic product (GDP) data are on a 4-quarter basis ending in Q3.

OURCE: Department of the Treasury, Financial Management Service;

Oce of Management and Budget and Bureau of Economic Analysis via

Haver Analytics.

Debt held by

the public

100

120

Percent of nominal GDP

1.0

1.5

2.0

2.5

3.0

3.5

26. Federal government debt and net interest outlays

Percent of nominal GDP

1903 1923 1943 1963 1983 2003 2023

Net interest outlays

on federal debt

OTE

: The data for net interest outlays are annual, begin in 1948, and

extend through 2023. Net interest outlays are the cost of servicing the

debt held by the public. Federal debt held by the public equals federal

debt less Treasury securities held in federal employee dened-benet

retirement accounts, evaluated at the end of the quarter. The data for

federal debt are annual from 1901 to 1951 and a 4-quarter moving

average thereafter and extend through 2023:Q3. GDP is gross d

omestic

product.

OURCE

: For GDP, Bureau of Economic Analysis via Haver

Analytics; for federal debt, Congressional Budget Oce and Federal

Reserve Board, Statistical Release Z.1, “Financial Accounts of the

United States.”

24 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

budget position overall (gure27). Although

state tax revenues weakened in 2023—mainly

reecting a normalization of receipts from

elevated levels in the previous year as well

as the eects of recently enacted tax cuts

in some states—taxes as a percentage of

GDP remained above recent historical

norms. Moreover, states’ total balances (that

is, including rainy day fund balances and

previous-year surplus funds) continued to

be near all-time highs. Nevertheless, budget

situations varied widely across the states, with

some states—particularly those that depend

heavily on capital gains tax collections—facing

tighter budget conditions. At the local level,

overall property tax receipts rose briskly

in2023.

. . . contributing to brisk growth in

employment and construction spending

Employment in state and local governments

rose strongly in 2023, as some pandemic-

related headwinds, such as an increase in

retirements, have abated and wages became

more competitive relative to those in the

private sector (gure28). Similarly, real

construction outlays grew rapidly, reecting

easing bottlenecks and support from federal

grants. By the end of 2023, both employment

and construction spending were roughly back

to their pre-pandemic levels.

Financial Developments

The expected level of the federal funds

rate over the next few years is now higher

than it was last June on net

Market-based measures of the expected federal

funds rate rose considerably over the summer

and early fall before moving down toward the

end of 2023. On net, the market-implied policy

rate path rose notably for year-end 2024, and

somewhat more modestly for year-end 2025

and 2026 (gure29).

Financial market prices

imply that the federal funds rate will decline

7. These measures are based on market prices for

overnight index swaps for the eective federal funds rate

and are not adjusted for term premiums.

18.5

19.0

19.5

20.0

20.5

Millions of jobs

2024202220202018201620142012201020082006

Monthly

28. State and local government payroll employment

OURCE

: Bureau of Labor Statistics via Haver Analytics.

June 1, 2023

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Percent

202820272026202520242023

29. Market-implied federal funds rate path

Quarterly

February 27, 2024

OTE

: The federal funds rate path is implied by quotes on overnight

index swaps—a derivative contract tied to the eective federal funds rate.

The implied path as of June 1, 2023, is compared with that as of

February 27, 2024. The path is estimated with a spline approach,

assuming a term premium of 0 basis points. The June 1, 2023, path

extends through 2027:Q2 and the February 27, 2024, path through

2028:Q1.

OURCE

: Bloomberg; Federal Reserve Board sta estimates.

Total state taxes

Percent change from year earlier

202320212019201720152013

27. State and local tax receipts

Quarterly

OTE

: Receipts shown are year-over-year percent changes of 4-quarter

moving averages, begin in 2012:Q4, and extend through 2023:Q3.

Property taxes are primarily collected by local governments.

OURCE

: U.S. Census Bureau, Quarterly Summary of State and Loca

Government Tax Revenue.

Property taxes

MONETARY POLICY REPORT: MARCH 2024 25

from current levels following the March2024

FOMC meeting, reaching about 4.6percent

and about 3.7percent by year-end 2024

and year-end 2025, respectively. Consistent

with these market-implied measures, survey

respondents in the Blue Chip Financial

Forecasts published at the beginning of

February expect the policy rate to begin to

decrease in the second quarter of 2024 and

reach 4.4percent by year-end 2024. On net,

respondents have signicantly revised upward

their expectations of the federal funds rate

path since last June’s survey.

Yields on long-term U.S. nominal Treasury

securities uctuated considerably

Yields on long-term nominal Treasury

securities began to increase in the spring of

2023 and rose markedly through mid-October

before reversing course sharply, with the

10-year Treasury yield reaching a peak of

about 5percent before falling to just below

4percent by the end of last year (gure30).

So far this year, long-term nominal Treasury

yields have increased, with the 10-year

Treasury yield rising to about 4.4percent by

late February. In contrast, short-term Treasury

yields have been little changed, on net, since

early June.

Yields on other long-term debt uctuated

with Treasury yields

Corporate bond yields declined across credit

categories since June, on net, amid sizable

uctuations that accompanied the observed

large movements in long-term Treasury

yields (gure31). Spreads on corporate

bonds over comparable-maturity Treasury

securities narrowed notably, on net, especially

for speculative-grade bonds, to levels in the

lower range of their historical distributions.

Similarly, municipal bond spreads over

comparable-maturity Treasury securities

narrowed substantially since June and are

now fairly low relative to their historical

distributions across credit ratings. Overall,

corporate and municipal credit quality

remained solid, with a low volume of defaults

in both markets despite some increase in

corporate bond defaults.

2-year

5-year

Percent

20242023202220212020201920182017

30. Yields on nominal Treasury securities

Daily

OURCE

: Department of the Treasury via Haver Analytics.

10-year

High-yield corporate

Municipal

Percent

20242023202220212020201920182017

31. Corporate bond yields, by securities rating, and

municipal bond yield

Daily

Investment-grade corporate

OTE: Investment-grade corporate reects the eective yield of the

ICE Bank of America Merrill Lynch (BofAML) triple-B U.S.

Corporate

Index (C0A4). High-yield corporate reects the eective yield of the ICE

BofAML High Yield Index (H0A0). Municipal reects the yield to worst

of the ICE BofAML U.S. Municipal Securities Index (U0A0).

SOURCE: ICE Data Indices, LLC, used with permission.

26 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Yields on agency mortgage-backed securities

(MBS)—an important pricing factor for home

mortgage interest rates—rose notably over the

summer before falling back down toward the

end of last year (gure32). So far this year,

yields on agency MBS have increased, standing

in late February at levels notably above those

in June2023. The MBS spread decreased

slightly since June, on net, but remained

elevated relative to pre-pandemic levels, at least

partly due to high interest rate volatility, which

reduces the value of holding MBS.

Broad equity price indexes increased

The S&P 500 index increased signicantly

since June, on net, above the record-high levels

seen at the end of 2021 (gure33). Following

a substantial decline over late summer and

early fall, the S&P 500 index recovered

toward the end of the year, as long-term

interest rates declined, and continued to rise

over the start of 2024. Meanwhile, small-cap

rms, whose equity prices have signicantly

underperformed broad equity indexes,

experienced substantial increases in their

equity valuations in recent months amid better

economic prospects, including expectations of

a less restrictive monetary policy. Bank equity

prices rose, on net, retracing some of the

declines that had occurred over the rst half of

2023 and that had been associated with strains

in the banking sector. In the case of the largest

banks, equity prices rose above their early-2023

levels; regional bank equity prices had only

a partial retracement. One-month option-

implied volatility on the S&P 500 index—

theVIX—increased moderately until late

October but subsequently declined to reach

levels somewhat lower than those prevailing

in early June. (For a discussion of nancial

stability issues, see the box “Developments

Related to Financial Stability.”)

Yield

100

150

200

250

Basis points

20242023202220212020201920182017

32. Yield and spread on agency mortgage-backed

securities

Percent

Spread

OTE: The data are daily. Yield shown is for the uniform

mortgage-backed securities 30-year current coupon, the coupon rate at

which new mortgage-backed securities would be priced at par, or face,

value for dates after May 31, 2019; for earlier dates, the yield shown is for

the Fannie Mae 30-year current coupon. Spread shown is to the average

of the 5-year and 10-year nominal Treasury yields.

OURCE: Department of the Treasury; J.P. Morgan. Courtesy of J.P.

S&P 500 index

100

125

150

175

December 31, 2019 = 100

20242023202220212020201920182017

33. Equity prices

Daily

Dow Jones bank index

OURCE: S&P Dow Jones Indices LLC via Bloomberg. (For Dow

Jones Indices licensing information, see the note on the Contents page.)

MONETARY POLICY REPORT: MARCH 2024 27

non nancial businesses by private credit funds and

other private investors has been growing rapidly. While

risks from leverage and investor redemption appear

limited, the sector remains opaque, making it dif cult

to assess vulnerabilities.

Vulnerabilities in the  nancial sector remain

notable, as losses in the fair value of long-dated bank

assets remain signi cant. Risk-based capital ratios

increased broadly across all bank categories and sit

well above regulatory minimums, driven both by robust

bank pro tability and by a decrease in shareholder

payouts at the largest banks. Credit quality at banks

remained strong, although the quality of CRE loans

backed by of ce, retail, and multifamily buildings

continued its decline, a result of the lower demand

for downtown real estate prompted by the shift toward

telework. Some smaller regional and community banks

with high concentrations of CRE loans are also highly

reliant on uninsured deposits, potentially compounding

vulnerabilities. Leverage at hedge funds stabilized

at a high level as the Treasury cash–futures basis

This discussion reviews vulnerabilities in the U.S.

 nancial system. The framework used by the Federal

Reserve Board for assessing the resilience of the U.S.

 nancial system focuses on  nancial vulnerabilities

in four broad areas: asset valuations, business and

household debt, leverage in the  nancial sector, and

funding risks. Acute stress in the banking system has

receded since last spring, and banks’ regulatory risk-

based capital ratios remained solid and increased

broadly, as bank pro ts were robust and banks reduced

capital distributions. Nonetheless, declines in the

fair value of  xed-rate assets at some banks have

been sizable relative to regulatory capital. Valuation

pressures increased modestly, with equity markets close

to all-time highs in real terms and real estate prices still

high relative to fundamentals. Credit to non nancial

businesses and households continued to decrease

relative to gross domestic product (GDP), and this ratio

now sits close to its 20-year low. However, funding

vulnerabilities remain notable. Hedge fund leverage

is elevated, partly due to elevated activity in the cash–

futures basis trade.

Broad equity prices are now at levels close to

historical highs, driven mostly by performance of the

largest companies. Nominal long-term Treasury yields

rose to a 15-year peak in October but have now fallen

to levels close to those from a year ago. Commercial

real estate (CRE) prices continued to decline, especially

in the of ce, retail, and multifamily sectors, and

low levels of transactions in the of ce sector likely

indicated that prices had not yet fully re ected the

sector’s weaker fundamentals. Prices of single-family

residential properties, which held steady through the

 rst quarter of 2023, have started rising again, albeit

modestly, and remain high relative to market rents.

Vulnerabilities arising from household and

non nancial business leverage remain moderate. The

combined debt of both sectors as a share of GDP sat

close to its lowest level in 20years and continues to

decrease ( gure A). In the household sector, balance

sheets remain strong, and homeowners’ equity shares

of houses are now at their highest levels in at least

30years. Non nancial businesses’ ability to service

debt also remains adequate, as the pass-through of

higher policy rates has so far been muted by the large

share of long-term  xed-rate debt. Direct lending to

Developments Related to Financial Stability

(continued on next page)

1.0

1.2

1.4

1.6

1.8

Ratio

2023201620092002199519881981

A. Private nonnancial-sector credit-to-GDP ratio

Quarterly

NOTE:Data extend through 2023:Q3. The shaded bars with top cap

indicate periods of business recession as dened by the National

Bureau

of Economic Research: July 1981 to November 1982, July 1990 to Marc

1991, March 2001 to November 2001, December 2007 to June 2009, an

February 2020 to April 2020. GDP is gross domestic product.

OURCE: Federal Reserve Board, Statistical Release Z.1, “Financia

Accounts of the United States”; Bureau of Economic Analysis,

national

income and product accounts; Federal Reserve Board sta calculations.

28 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

second half of 2023, mostly because of increases in

retail prime funds.

A routine survey of market contacts on salient

shocks to  nancial stability highlights several important

risks. Adverse developments in longer-term interest

rates could potentially strain credit supply in vulnerable

sectors. A related risk, the reemergence of banking-

sector stress at some institutions, might further constrain

the supply of credit, particularly at banks with large

CRE concentration and a high fraction of uninsured

deposits. Geopolitical risks remain salient, including

Russia’s war against Ukraine and potential spillovers of

the Israel–Hamas war, and could cause strains in parts

of the U.S.  nancial system.

Developments Related to Financial Stability (continued)

trade continued to grow, suggesting a risk of sudden

deleveraging if volatility in Treasury markets increases

unexpectedly. Leverage at life insurers also increased,

although to levels near the middle of its historical

distribution.

In terms of funding risks, liquidity remains ample,

and deposits have stabilized recently. The number of

banks with large declines in fair value relative to their

regulatory capital and heavy reliance on uninsured

deposits has declined signi cantly since March2023.

Overall, banks’ reliance on short-term wholesale

funding remained much lower than the typical range

before the banking reforms of the previous decade.

Money market funds continued to grow throughout the

MONETARY POLICY REPORT: MARCH 2024 29

Major asset markets functioned in

an orderly way, but liquidity has

remainedlow

Treasury securities market functioning

has continued to be orderly, but liquidity

remained low by historical standards. The

persistence of low liquidity is broadly in line

with enduring high interest rate volatility, as

future economic conditions and the policy

rate path remain particularly uncertain.

Market depth—a measure of the availability

of contracts at the best quoted prices—for

Treasury securities remains near historically

low levels, particularly in the case of short-

term Treasury securities. With regard to

liquidity in the equity market, market depth

based on S&P500 futures was little changed

and remained somewhat low compared with

pre-COVID levels. Corporate and municipal

secondary bond markets continued to function

well; transaction costs in these markets were

fairly low by historical standards.

Short-term funding market conditions

remained stable

Conditions in overnight bank funding and

repurchase agreement (repo) markets remained

stable. Since June, the eective federal

funds rate and other unsecured overnight

rates have been a few basis points below

the interest rate on reserve balances, while

the Secured Overnight Financing Rate has

been at or slightly above the oering rate on

the overnight reverse repurchase agreement

(ON RRP) facility. Take-up at the ONRRP

facility has declined substantially since June.

This decline reects a signicant increase in

the net supply of Treasury bills and relatively

more attractive rates on alternative short-term

investments such as private repo.

Money market funds (MMFs), the largest

investors in the ON RRP facility, accounted

for much of the decline in ON RRP take-up as

they made a substantial reallocation of their

investments toward Treasury bills and private

repo. Both prime and government MMFs

have seen a notable increase in assets under

management since June, as relatively favorable

30 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

yields continue to attract funds previously

held on deposit in the banking sector.

Weighted average maturities at both prime and

government MMFs increased in anticipation

of fewer policy rate increases.

Bank credit growth continued to slow

over the second half of 2023

The slowdown in bank credit growth was

broad based, with growth in outstanding

balances for all major loan categories slowing

from earlier in the year, likely reecting

the eects of higher interest rates, tighter

credit availability, and economic uncertainty

(gure34). Banks in the Senior Loan Ocer

Opinion Survey on Bank Lending Practices

reported tighter standards and weaker demand

over the third and fourth quarters, continuing

trends for standards and demand that have

been reported since the middle of 2022.

Delinquency rates on bank loans generally

rose in the second half of 2023—with the

largest increases for commercial real estate

and consumer loans—but remained around

ranges observed before the pandemic except

for consumer loans. Bank protability moved

down in the second half of 2023 to levels

below those that prevailed before the pandemic

(gure35).

International Developments

Foreign economic growth slowed in the

second half of 2023

Following a rebound in early 2023, foreign

activity was subdued overall in the second

half of last year, although with some variation

across countries. In advanced foreign

economies (AFEs), several factors restrained

growth, including the tightening of monetary

policy over the past two years—which weighed

on credit growth and investment—and an

erosion of real household incomes amid

high ination rates. In Europe, ongoing

structural adjustment to higher energy prices

also continued to hinder the performance of

energy-intensive sectors. Economic indicators

point to continued weakness in AFE growth in

early 2024.

Return on assets

Percent, annual rate

2.0

1.5

1.0

1.5

2.0

2005 2008 2011 2014 2017 2020 2023

35. Protability of bank holding companies

Percent, annual rate

Return on equity

OTE

:The data are quarterly.

OURCE: Federal Reserve Board, Form FR Y-9C, Consolidated

Financial Statements for Holding Companies.

Percent

2023202020172014201120082005

34. Ratio of total commercial bank credit to nominal

gross domestic product

Quarterly

OURCE

: Federal Reserve Board, Statistical Release H.8, “Assets and

Liabilities of Commercial Banks in the United States”; Bureau o

Economic Analysis via Haver Analytics.

MONETARY POLICY REPORT: MARCH 2024 31

In China, a post-pandemic boost to economic

growth early in 2023 faded by the second

quarter, and property-sector weakness and

sluggish domestic demand have remained

a constraint on economic activity. Policy

stimulus targeting infrastructure and

manufacturing investment bolstered Chinese

growth in the second half of the year, enabling

the government to meet its 2023 growth target.

In emerging market economies (EMEs)

other than China, economic activity slowed

in the second half of last year but was more

resilient overall than in the AFEs. Industrial

production in emerging Asia excluding China

began recovering, supported by a rebound in

global demand for high-tech products that was

driven in part by the articial intelligence and

electric vehicle sectors.

Ination abroad has continued to ease

but remains elevated

Foreign headline ination has continued to

decline since the middle of last year, reecting

lower core and food ination (gure36).

Both the subsiding eects of past global

supply bottlenecks and the drag on demand

from monetary policy tightening have eased

Percent

2017–19

avg.

2020–21

avg.

2022 2023:H1 2023:H2

Advanced foreign economies

NOTE: The advanced foreign economy aggregate is the average of Canada, the euro area, and the U.K., weighted by shares of U.S. non-oil good

imports.

The emerging market economy aggregate is the average of Argentina, Brazil, Chile, Colombia, Hong Kong, India, Indonesia, Israel, Malaysia

Mexico,

the Philippines, Russia, Saudi Arabia, Singapore, South Korea, Taiwan, Thailand, and Vietnam, weighted by shares of U.S. non-oil good

imports,

and begins in 2017:Q2. The ination measure is the Harmonised Index of Consumer Prices for the euro area and the consumer price index

for

other economies. The data show percent changes from year-ago levels.

OURCE: Federal Reserve Board sta calculations; Haver Analytics.

Energy

Food

Core

Percent

2017–19

avg.

2020–21

avg.

2022 2023:H12023:H2

Emerging market economies

Energy

Food

Core

36. Components of foreign consumer price ination

32 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

inationary pressures (gure37). However, the

pace of disination has varied across sectors

and countries. The deceleration in goods

prices abroad has generally outpaced that in

services prices, as in the U.S. Ination remains

above target in Europe but has been running

near zero in China. Although the are-up in

geopolitical tensions in the Middle East and

accompanying disruptions to shipping through

the Red Sea have had only limited eects on

consumer prices in general and on global

energy prices in particular, further escalation

in tensions could disrupt global momentum

toward restoring lower ination.

Foreign central banks are maintaining a

restrictive monetary policy stance

Most foreign central banks paused their

interest rate hikes in the second half of last

year and have since held policy rates steady,

acknowledging the cumulative tightening

of policy and progress in lowering ination.

Policy rate paths implied by nancial market

pricing suggest that many AFE central banks

are expected to begin reducing interest rates in

2024. Several EME central banks have already

begun easing monetary policy. However,

foreign central banks have generally continued

to emphasize in their communications that

progress toward achieving their ination goals

could slow or even reverse, including from

resilience in labor markets, wage growth, or

geopolitical developments leading to higher

commodity prices and trade costs.

Financial conditions abroad have been

volatile but have eased, on balance,

since mid-2023

Near-dated AFE sovereign yields declined

toward the end of last year as central banks

signaled they had reached or neared the end of

policy rate tightening. Longer-term sovereign

yields unwound most of the increase registered

earlier in 2023 (gure38). One exception was

Japan, where the central bank widened the

band around its yield curve control target,

allowing yields on 10-year government

securities to increase, on net, in 2023.

Germany

Japan

Canada

Percent

2019 2020 2021 2022 2023 2024

38. Nominal 10-year government bond yields in

selected advanced foreign economies

Weekly

OTE

: The data are weekly averages of daily benchmark yields and

extend through February 23, 2024.

OURCE

: Bloomberg.

U.K.

AFEs ex. Japan

Percent change from year earlier

2016 2017 2018 2019 2020 2021 2022 2023 2024

37. Consumer price ination in foreign economies

Monthly

EMEs ex. China

OTE: The advanced foreign economy (AFE) aggregate is the average

of Canada, the euro area, and the U.K., weighted by shares of U.S.

non-oil goods imports. The emerging market economy (EME) aggregate

is the average of Argentina, Brazil, Chile, Colombia, Hong Kong,

India,

Indonesia, Israel, Malaysia, Mexico, the Philippines, Russia, Saudi

Arabia, Singapore, South Korea, Taiwan, Thailand, and Vietnam,

weighted by shares of U.S. non-oil goods imports. The ination measure

is the Harmonised Index of Consumer Prices for the euro area and the

consumer price index for other economies.

OURCE

: Federal Reserve Board sta calculations; Haver Analytics.

MONETARY POLICY REPORT: MARCH 2024 33

Since mid-2023, the broad dollar index—a

measure of the exchange value of the

dollar against a trade-weighted basket of

foreign currencies—increased slightly on net

(gure39). The dollar index was volatile,

increasing signicantly as U.S. yields rose from

July to October and then reversing most of

these increases as U.S. yields declined.

Many major foreign equity indexes rose across

AFEs and EMEs, although gains were near

zero in the U.K., consistent with stagnant

economic activity (gure40). Chinese equity

prices were an exception, with declines amid

pessimism about growth prospects and a

pullback by foreign investors from Chinese

markets. Flows to EME-focused investment

funds turned negative in mid-2023, as yields

on advanced-economy bonds rose more than

those in emerging economies. These outows

eased toward the end of the year as AFE

yields fell. EME sovereign spreads narrowed

moderately last year.

100

105

110

115

Week ending December 27, 2019 = 100

2014 2016 2018 2020 2022 2024

39. U.S. dollar exchange rate index

Weekly

Dollar appreciation

OTE: The data, which are in foreign currency units per dollar, are

weekly averages of daily values of the broad dollar index and

extend

through February 23, 2024. As indicated by the arrow, increases in the

data reect U.S. dollar appreciation and decreases reect U.S. dollar

depreciation.

OURCE: Federal Reserve Board sta calculations; Federal Reserve

Board, Statistical Release H.10, “Foreign Exchange Rates.”

Japan

U.K.

Euro area

100

110

120

130

140

150

160

170

180

Week ending January 8, 2016 = 100

2016 2017 2018 2019 20202021202220232024

40. Equity indexes for selected foreign economies

Weekly

NOTE: The data are weekly averages of daily data and extend through

February 23, 2024.

OURCE: For the euro area, Dow Jones Euro Stoxx Index; for Japan

Tokyo Stock Price Index; for China, Shanghai Composite Index; for the

U.K., FTSE 100 Index; all via Bloomberg. (For Dow Jones Indices

licensing information, see the note on the Contents page.)

China

After one additional increase in July, the

Federal Open Market Committee has

held the federal funds rate steady . . .

The Federal Open Market Committee

(FOMC) has maintained the target range for

the federal funds rate at 5¼ to 5½percent

since its July2023 meeting (gure41). The

Committee views the policy rate as likely at

its peak for this tightening cycle; since early

2022, the FOMC raised the target range

a total of 525 basis points. The FOMC’s

policy tightening actions have reected its

commitment to return ination to its 2percent

objective. Restoring price stability is essential

to achieve a sustained period of strong labor

market conditions that benet all.

As labor market tightness has eased and

progress on ination has continued, the risks

to achieving the Committee’s employment and

ination goals have been moving into better

balance. Even so, the Committee remains

highly attentive to ination risks and is acutely

aware that high ination imposes signicant

hardship, especially on those least able to

meet the higher costs of essentials, like food,

housing, and transportation. In considering

any adjustments to the target range for the

federal funds rate, the Committee will carefully

assess incoming data, the evolving outlook,

and the balance of risks. The Committee does

not expect it will be appropriate to reduce

the target range until it has gained greater

condence that ination is moving sustainably

toward 2percent.

. . . and has continued the process of

signicantly reducing its holdings of

Treasury and agency securities

The FOMC began reducing its securities

holdings in June2022 and, since then,

has continued to implement its plan for

signicantly reducing the size of the Federal

Reserve’s balance sheet in a predictable

manner.

Since September2022, principal

payments from securities held in the System

8. See the May4, 2022, press release regarding the

Plans for Reducing the Size of the Federal Reserve’s

Balance Sheet, available on the Board’s website at https://

www.federalreserve.gov/newsevents/pressreleases/

monetary20220504b.htm.

Part 2

monetary PoLicy

Target federal funds rate

2-year Treasury rate

Percent

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

41.

Selected interest rates

Daily

10-year Treasury rate

OTE

: The 2-year and 10-year Treasury rates are the constant-maturity yields based on the most actively traded securities.

OURCE

: Department of the Treasury; Federal Reserve Board.

36 PART 2: MONETARY POLICY

Open Market Account (SOMA) have been

reinvested only to the extent that they exceeded

monthly caps of $60billion per month for

Treasury securities and $35billion per month

for agency debt and agency mortgage-backed

securities. As a result of these actions, the

SOMA holdings of Treasury and agency

securities have declined about $1.4trillion

since the start of balance sheet reduction to

around $7.1trillion, a level equivalent to about

25percent of U.S. nominal gross domestic

product as compared with a peak of 35percent

reached at the end of 2021 (gure42). Despite

this decline in SOMA holdings, reserve

balances increased $217billion, to a level of

around $3.5trillion, as the corresponding

decline in the Federal Reserve’s liabilities

was concentrated in usage of the overnight

reverse repurchase agreement facility. (See the

box “Developments in the Federal Reserve’s

Balance Sheet and Money Markets.”)

The FOMC has stated that it intends to

maintain securities holdings at amounts

consistent with implementing monetary

policy eciently and eectively in its ample-

reserves regime. To ensure a smooth transition,

the FOMC intends to slow and then stop

reductions in its securities holdings when

reserve balances are somewhat above the level

that the FOMC judges to be consistent with

ample reserves. Once balance sheet runo has

ceased, reserve balances will likely continue

to decline at a slower pace—reecting growth

in other Federal Reserve liabilities—until

the FOMC judges that reserve balances are

at an ample level. Thereafter, the FOMC

will manage securities holdings as needed to

maintain ample reserves over time.

The FOMC will continue to monitor the

implications of incoming information for

the economic outlook

As already indicated, the FOMC is strongly

committed to returning ination to its

2percent objective, and, in considering any

adjustments to the target range for the federal

funds rate, the Committee will carefully assess

incoming data, the evolving outlook, and

the balance of risks. Its assessments will take

into account a wide range of information,

including readings on labor market conditions,

ination pressures and ination expectations,

Trillions of dollars

20242023202220212020201920182017201620152014201320122011201020092008

42. Federal Reserve assets and liabilities

Weekly

Other assets

Credit and liquidity facilities

Agency debt and mortgage-backed securities holdings

Treasury securities held outright

Federal Reserve notes in circulation

Deposits of depository institutions

Reverse repurchase agreements

Capital and other liabilities

OTE

: “Other assets” includes repurchase agreements, FIMA (Foreign and International Monetary Authorities) repurchase agreements, and unamortized

premiums and discounts on securities held outright. “Credit and liquidity facilities” consists of primary, secondary, and seasonal credit; term auction credit;

central bank liquidity swaps; support for Maiden Lane, Bear Stearns Companies, Inc., and AIG; and other credit and liquidity facilities, including the Primary

Dealer Credit Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Term

Asset-Backed Securities Loan Facility, the Primary and Secondary Market Corporate Credit Facilities, the Paycheck Protection Program Liquidity Facility, the

Municipal Liquidity Facility, and the Main Street Lending Program. “Agency debt and mortgage-backed securities holdings” includes agency residential

mortgage-backed securities and agency commercial mortgage-backed securities. “Capital and other liabilities” includes the U.S. Treasury General Account and

the U.S. Treasury Supplementary Financing Account. The key identies shaded areas in order from top to bottom. The data extend through February 21, 2024.

OURCE

: Federal Reserve Board, Statistical Release H.4.1, “Factors Aecting Reserve Balances.”

MONETARY POLICY REPORT: MARCH 2024 37

and nancial and international developments.

The Committee has noted that it is also

prepared to adjust its approach to reducing the

size of the balance sheet in light of economic

and nancial developments.

In addition to considering a wide range of

economic and nancial data, the FOMC

gathers information from business contacts

and other informed parties around the

country, as summarized in the Beige Book.

The Federal Reserve has regular arrangements

under which it hears from a broad range of

participants in the U.S. economy about how

monetary policy aects people’s daily lives

and livelihoods. In particular, the Federal

Reserve has continued to gather insights into

these matters through the Fed Listens initiative

and the Federal Reserve System’s community

development outreach.

Policymakers also routinely consult

prescriptions for the policy interest rate

provided by various monetary policy rules.

These rule prescriptions can provide useful

benchmarks for the FOMC. However, simple

rules cannot capture all of the complex

considerations that go into the formation

of appropriate monetary policy, and many

practical considerations make it undesirable

for the FOMC to adhere strictly to the

prescriptions of any specic rule. Nevertheless,

some principles of good monetary policy can

be brought out by examining these simple

rules. (See the box “Monetary Policy Rules in

the Current Environment.”)

38 PART 2: MONETARY POLICY

in June2022 ( gures A and B). This discussion reviews

recent developments in the Federal Reserve’s balance

sheet and money market conditions.

While the reduction in the size of the SOMA portfolio

has continued as planned, amid the banking-sector

developments of spring 2023, the Federal Reserve

provided liquidity to help ensure the stability of the

banking system and the ongoing provision of money

The Federal Open Market Committee (FOMC)

continued to reduce the size of the Federal Reserve’s

System Open Market Account (SOMA) portfolio,

consistent with its plans for reducing the size of the

Federal Reserve’s balance sheet. Since the time of the

June2023 report, total Federal Reserve assets have

decreased $806 billion, leaving the total size of the

balance sheet at $7.6 trillion, $1.3 trillion smaller since

the reduction in the size of the SOMA portfolio began

Developments in the Federal Reserve’s Balance Sheet

and Money Markets

A. Balance sheet comparison

Billions of dollars

February 21, 2024 June14, 2023

Change

(since June2023)

Change (since

Fed’s balance sheet

reduction began on

June 1, 2022)

Assets

Total securities

Treasury securities 4,661 5,160 −499 −1,109

Agency debt and MBS 2,417 2,561 −144 −293

Net unamortized premiums 274 298 −24 −63

Repurchase agreements 0 0 0 0

Loans and lending facilities

PPPLF 3 8 −5 −17

Discount window 2 4 −2 2

BTFP 164 102 62 164

Other credit extensions 0 180 −180 0

Other loans and lending facilities

15 28 −13 −20

Central bank liquidity swaps 0 0 0 0

Other assets 44 48 −4 2

Total assets 7,582 8,388 −806 −1,333

Liabilities

Federal Reserve notes 2,280 2,292 −12 50

Reserves held by depository institutions 3,523 3,306 217 166

Reverse repurchase agreements

Foreign o cial and international accounts 340 328 12 74

Others 575 2,109 −1,534 −1,390

U.S. Treasury General Account 789 135 654 8

Other deposits 164 220 −56 −84

Other liabilities and capital −89 −2 −87 −157

Total liabilities and capital 7,582 8,388 −806 −1,333

N: MBS is mortgage-backed securities. PPPLF is Paycheck Protection Program Liquidity Facility. BTFP is Bank Term Funding Program. Components may not sum to

totals because of rounding.

S: Federal Reserve Board, Statistical Release H.4.1, “Factors A ecting Reserve Balances.”

(continued)

MONETARY POLICY REPORT: MARCH 2024 39

Despite the ongoing reduction in the Federal

Reserve’s securities holdings, reserve balances—the

largest liability item on the Federal Reserve’s balance

sheet—have increased $217 billion since June2023,

given other changes in the composition of the Federal

Reserve’s liabilities over this period.

Since June2023,

usage of the overnight reverse repurchase agreement

(ON RRP) facility has declined $1.5 trillion, while

balances in the Treasury General Account have

increased $654 billion ( gures A and C). On net,

changes in these and other nonreserve liabilities have

resulted in an increase in reserve balances.

After remaining above $2 trillion during the  rst half

of 2023, usage of the ON RRP facility has declined to

the current interest rate environment. After March11, 2024,

banks and other DIs will continue to have ready access to

the discount window to meet liquidity needs. For additional

information, see Board of Governors of the Federal Reserve

System (2024), “Federal Reserve Board Announces the Bank

Term Funding Program (BTFP) Will Cease Making New

Loans as Scheduled on March11,” press release, January24,

https://www.federalreserve.gov/newsevents/pressreleases/

monetary20240124a.htm.

3. Reserve balances consist of deposits held at the Federal

Reserve Banks by DIs, such as commercial banks, savings

banks, credit unions, thrift institutions, and U.S. branches

and agencies of foreign banks. Reserve balances allow DIs to

facilitate daily payment  ows, both in ordinary times and in

stress scenarios, without borrowing funds or selling assets.

and credit to the economy.

Loans under the Bank Term

Funding Program—which made additional funding and

liquidity available to eligible depository institutions to

support American businesses and households and which

will cease making new loans as scheduled on March11,

2024—have increased $62billion since June2023

( gure A).

1. The loans that were extended to depository institutions

(DIs) placed into Federal Deposit Insurance Corporation

(FDIC) receivership in March2023 have been fully repaid.

The Federal Reserve Banks’ loans to these DIs are secured

by pledged collateral, and the FDIC provides repayment

guarantees. For additional information, see Board of Governors

of the Federal Reserve System (2024), “Additional Information

on Other Credit Extensions,” webpage, January4, https://www.

federalreserve.gov/monetarypolicy/additional-information-on-

other-credit-extensions.htm.

2. The Bank Term Funding Program (BTFP) was established

under section 13(3) of the Federal Reserve Act with the

approval of the Secretary of the Treasury. The BTFP offers loans

of up to one year to banks, savings associations, credit unions,

and other eligible DIs against collateral such as U.S. Treasury

securities, U.S. agency securities, and U.S. agency mortgage-

backed securities. For more details, see Board of Governors

of the Federal Reserve System (2024), “Bank Term Funding

Program,” webpage, February 13, https://www.federalreserve.

gov/financial-stability/bank-term-funding-program.htm.

The interest rate applicable to new BTFP loans has been

adjusted such that the rate on new loans extended from

January25, 2024, through program expiration will be no

lower than the interest rate on reserve balances in effect on

the day the loan is made. This rate adjustment ensures that

the BTFP continues to support the goals of the program in

Trillions of dollars

2019 2020 2021 2022 2023 2024

B. Federal Reserve assets

Weekly

OTE

: MBS is mortgage-backed securities. The key identies shaded areas

order from top to bottom. The data extend through February 21, 2024.

OURCE

: Federal Reserve Board, Statistical Release H.4.1, “Factors A

ecting

Reserve Balances.”

Other assets

Loans

Central bank liquidity swaps

Repurchase agreements

Agency debt and MBS

Treasury securities

held outright

Trillions of dollars

2019 2020 2021 2022 2023 2024

C. Federal Reserve liabilities

Weekly

OTE

: “Capital and other liabilities” includes Treasury contributions and is

negative on February 21, 2024, because of the deferred asset that the Federal

Reserve reports. The key identies shaded areas in order from top to bottom. The

data extend through February 21, 2024.

OURCE

: Federal Reserve Board, Statistical Release H.4.1, “Factors Aecting

Reserve Balances.”

Reverse repurchase agreements

Deposits of depository institutions (reserves)

U.S. Treasury General Account

Other deposits

Capital and other liabilities

Federal Reserve notes

(continued on next page)

40 PART 2: MONETARY POLICY

Reserve’s deferred asset increased $82 billion since last

June to a level of $152 billion.

Negative net income

and the associated deferred asset do not affect the

Federal Reserve’s conduct of monetary policy or its

ability to meet its  nancial obligations.

4. The deferred asset is equal to the cumulative shortfall of

net income and represents the amount of future net income

that will need to be realized before remittances to the Treasury

resume. Although remittances are suspended at the time of this

report, over the past decade and a half, the Federal Reserve

has remitted over $1trillion to the Treasury.

5. Net income is expected to turn positive again as interest

expenses fall, and remittances will resume once the temporary

deferred asset falls to zero. As a result of the ongoing

reduction in the size of the Federal Reserve’s balance sheet,

it is expected that interest expenses will fall over time in line

with the decline in the Federal Reserve’s liabilities.

about $575 billion amid the ongoing reduction in the

Federal Reserve’s balance sheet and the substantial

increase in net supply of Treasury securities. Reduced

usage of the ON RRP facility largely re ects money

market funds shifting their portfolio toward higher-

yielding investments, including Treasury bills and

private-market repurchase agreements.

The ON RRP facility is intended to help keep the

effective federal funds rate within the target range. The

facility continued to serve this intended purpose, and

the Federal Reserve’s administered rates—the interest

rate on reserve balances and the ON RRP offering

rate—were highly effective at maintaining the effective

federal funds rate within the target range as the FOMC

tightened the stance of monetary policy.

The Federal Reserve’s expenses have continued to

exceed its income over recent months. The Federal

Federal Reserve’s Balance Sheet and Money Markets (continued)

MONETARY POLICY REPORT: MARCH 2024 41

these rules, along with a “balanced approach

(shortfalls)” rule, which responds to the unemployment

rate only when it is higher than its estimated longer-

run level.

All of the simple rules shown embody key

design principles of good monetary policy, including

the requirement that the policy rate should be adjusted

by enough over time to ensure a return of in ation to

the central bank’s longer-run objective and to anchor

longer-term in ation expectations at levels consistent

with that objective.

All  ve rules feature the difference between in ation

and the FOMC’s longer-run objective of 2percent. The

 ve rules use the unemployment rate gap, measured

as the difference between an estimate of the rate of

unemployment in the longer run (u

) and the current

unemployment rate; the  rst-difference rule includes

the change in the unemployment rate gap rather

than its level.

All but the  rst-difference rule include

an estimate of the neutral real interest rate in the

longerrun (r

rule is based on a rule suggested by Athanasios Orphanides

(2003), “Historical Monetary Policy Analysis and the Taylor

Rule,” Journal of Monetary Economics, vol. 50 (July), pp.983–

1022. A review of policy rules is provided in John B.Taylor

and John C. Williams (2011), “Simple and Robust Rules for

Monetary Policy,” in Benjamin M. Friedman and Michael

Woodford, eds., Handbook of Monetary Economics, vol.3B

(Amsterdam: North-Holland), pp. 829–59. The same volume

of the Handbook of Monetary Economics also discusses

approaches to deriving policy rate prescriptions other than

through the use of simple rules.

2. The balanced-approach (shortfalls) rule responds

asymmetrically to unemployment rates above or below their

estimated longer-run value: When unemployment is above

that value, the policy rates are identical to those prescribed by

the balanced-approach rule, whereas when unemployment

is below that value, policy rates do not rise because of

further declines in the unemployment rate. As a result, the

prescription of the balanced-approach (shortfalls) rule has

been less restrictive than that of the balanced-approach rule

since 2022:Q1.

3. Implementations of simple rules often use the output

gap as a measure of resource slack in the economy. The rules

described in  gureA instead use the unemployment rate gap

because that gap better captures the FOMC’s statutory goal

to promote maximum employment. Movements in these

alternative measures of resource utilization tend to be highly

correlated. For more information, see the note below  gureA.

4. The neutral real interest rate in the longer run (

) is

the level of the real federal funds rate that is expected to be

consistent, in the longer run, with maximum employment

and stable in ation. Like u

, r

is determined largely by

nonmonetary factors. The  rst-difference rule shown in

 gureA does not require an estimate of r

, a feature that is

touted by proponents of such rules as providing an element of

As part of their monetary policy deliberations,

policymakers regularly consult the prescriptions

of a variety of simple interest rate rules without

mechanically following the prescriptions of any

particular rule. Simple interest rate rules relate a

policy interest rate, such as the federal funds rate, to a

small number of other economic variables—typically

including the current deviation of in ation from its

target value and a measure of resource slack in the

economy.

Since 2021, in ation has run above the Federal

Open Market Committee’s (FOMC) 2percent longer-

run objective, and labor market conditions have been

tight. Although in ation remains elevated, it has eased

considerably over the past year, and labor supply and

demand have come into better balance. Against this

backdrop, the simple monetary policy rules considered

in this discussion have called for elevated levels of the

federal funds rate over 2021, 2022, and the  rst half of

2023, but the rates prescribed by these rules have now

declined to values close to the current target range for

the federal funds rate at 5¼ to5½percent. In support

of its goals of maximum employment and in ation at

the rate of 2percent over the longer run, the FOMC has

maintained the federal funds rate at 5¼ to5½percent

since July while continuing to reduce its holdings

of Treasury securities and agency debt and agency

mortgage-backed securities.

Selected Policy Rules: Descriptions

In many economic models, desirable economic

outcomes can be achieved over time if monetary

policy responds to changes in economic conditions

in a manner that is predictable and adheres to some

key design principles. In recognition of this idea,

economists have analyzed many monetary policy

rules, including the well-known Taylor(1993) rule, the

“balanced approach” rule, the “adjusted Taylor(1993)”

rule, and the “ rst difference” rule.

FigureA shows

1. The Taylor(1993) rule was introduced in John B.Taylor

(1993), “Discretion versus Policy Rules in Practice,” Carnegie-

Rochester Conference Series on Public Policy, vol. 39

(December), pp. 195–214. The balanced-approach rule was

analyzed in John B. Taylor (1999), “A Historical Analysis of

Monetary Policy Rules,” in John B. Taylor, ed., Monetary Policy

Rules (Chicago: University of Chicago Press), pp. 319–41. The

adjusted Taylor(1993) rule was studied in David Reifschneider

and John C. Williams (2000), “Three Lessons for Monetary

Policy in a Low-In ation Era,” Journal of Money, Credit and

Banking, vol. 32 (November), pp. 936–66. The  rst-difference

Monetary Policy Rules in the Current Environment

(continued on next page)

42 PART 2: MONETARY POLICY

Monetary Policy Rules (continued)

prescribed by the standard Taylor(1993) rule until after

the economy begins to recover.

Policy Rules: Limitations

As benchmarks for monetary policy, simple

policy rules have important limitations. One of these

limitations is that the simple policy rules mechanically

respond to only a small set of economic variables and

thus necessarily abstract from many of the factors that

the FOMC considers when it assesses the appropriate

setting of the policy rate. In addition, the structure of

the economy and current economic conditions differ

in important respects from those prevailing when

the simple policy rules were originally devised and

proposed. As a result, most simple policy rules do not

Unlike the other simple rules featured here,

the adjusted Taylor(1993) rule recognizes that the

federal funds rate cannot be reduced materially

below the effective lower bound (ELB). By contrast,

during the pandemic-induced recession, the standard

Taylor(1993) rule prescribed policy rates that were far

below zero. To make up for the cumulative shortfall in

policy accommodation following a recession during

which the federal funds rate is constrained by its ELB,

the adjusted Taylor(1993) rule prescribes delaying

the return of the policy rate to the (positive) levels

robustness. However, this rule has its own shortcomings. For

example, research suggests that this sort of rule often results

in greater volatility in employment and in ation than what

would be obtained under the Taylor(1993) and balanced-

approachrules.

A. Monetary policy rules

Balanced-approach rule

Balanced-approach (shortfalls) rule

First-dierence rule

Taylor (1993) rule

Adjusted Taylor (1993) rule

N: R

T93

, R

BAS

, R

T93adj

, and R

represent the values of the nominal federal funds rate prescribed by the Taylor (1993),

balanc

ed-approach, balanced-approach (shortfalls), adjusted Taylor (1993), and rst-dierence rules, respectively.

t−1

denotes the realized nominal federal funds rate for quarter t−1, π

is the 4-quarter price ination for quarter t, u

is the unemployment

te in quarter t , and r

is the level of the neutral real federal funds rate in the longer run that is expected to be consistent with sustaining

ximum employment and ination at the Federal Open Market Committee’s 2percent longer-run objective, π

. In addition, u

is the rate

unemployment expected in the longer run. Z

is the cumulative sum of past deviations of the federal funds rate from the prescriptions of th

ylor (1993) rule when that rule prescribes setting the federal funds rate below an eective lower bound (ELB) of 12.5 basis points.

The Taylor (1993) rule and other policy rules are generally written in terms of the deviation of real output from its full capacity level. In

thes

e equations, the output gap has been replaced with the gap between the rate of unemployment in the longer run and its actual level (using

rela

tionship known as Okun’s law) to represent the rules in terms of the unemployment rate. The rules are implemented as responding to core

rsonal consumption expenditures (PCE) ination rather than to headline PCE ination because current and near-term core ination rates

nd to outperform headline ination rates as predictors of the medium-term behavior of headline ination. Box note 1 provides references fo

e policy rules.

T93

= r

+ π

+ 0.5(π

− π

) + (u

− u

)

= R

t−1

+ 0.5(π

− π

) + (u

− u

) − (u

−

− u

t−4

)

T93adj

= max{R

T93

− Z

ELB}

BAS

= r

+ π

+ 0.5(π

− π

) + 2min{(u

− u

), 0}

= r

+ π

+ 0.5(π

− π

) + 2(u

− u

)

(continued)

MONETARY POLICY REPORT: MARCH 2024 43

considered. For each quarterly period, the  gure reports

the policy rates prescribed by the rules, taking as given

the prevailing economic conditions and survey-based

estimates of u

and r

at the time. All of the rules

considered called for a highly accommodative stance

of monetary policy in response to the pandemic-driven

recession, followed by positive values as in ation

picked up and labor market conditions strengthened. In

2022 and during the  rst half of 2023, the prescriptions

of the simple rules for the federal funds rate were

between 4 and 8percent; these values are well above

the levels observed before the pandemic and re ect, in

large part, elevated in ation readings. Because in ation

has eased recently, the policy rates prescribed by these

rules have now declined to values that are close to the

federal funds rate.

take into account the ELB on interest rates, which limits

the extent to which the policy rate can be lowered to

support the economy. This constraint was particularly

evident during the pandemic-driven recession, when

the lower bound on the policy rate motivated the

FOMC’s other policy actions to support the economy.

Relatedly, another limitation is that simple policy rules

do not explicitly take into account other important tools

of monetary policy, such as balance sheet policies.

Finally, simple policy rules are not forward looking

and do not allow for important risk-management

considerations, associated with uncertainty about

economic relationships and the evolution of the

economy, that factor into FOMC decisions.

Selected Policy Rules: Prescriptions

FigureB shows historical prescriptions for

the federal funds rate under the  ve simple rules

First-dierence rule

Taylor (1993) rule

Balanced-approach rule

Federal funds rate

Balanced-approach (shortfalls) rule

Percent

2024202320222021202020192018

B. Historical federal funds rate prescriptions from simple policy rules

NOTE: The rules use historical values of core personal consumption expenditures ination, the unemployment rate, and, where applicable,

historical

values

of the midpoint of the target range for the federal funds rate. Quarterly projections of longer-run values for the federal funds rate,

the

unemployment

rate, and ination used in the computation of the rules’ prescriptions are interpolations to quarterly values of projections from

the

Survey

of Primary Dealers. The rules’ prescriptions are quarterly, and the federal funds rate data are the monthly average of the daily midpoint of

the

target range for the federal funds rate and extend through February 2024.

SOURCE: Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York, Survey of Primary Dealers; Federal Reserve Board sta



estimates.

Adjusted Taylor (1993) rule

In conjunction with the Federal Open

Market Committee (FOMC) meeting held on

December12–13, 2023, meeting participants

submitted their projections of the most likely

outcomes for real gross domestic product

(GDP) growth, the unemployment rate, and

ination for each year from 2023 to 2026

and over the longer run. Each participant’s

projections were based on information

available at the time of the meeting, together

with her or his assessment of appropriate

monetary policy—including a path for the

federal funds rate and its longer-run value—

and assumptions about other factors likely

to aect economic outcomes. The longer-

run projections represent each participant’s

assessment of the value to which each variable

would be expected to converge, over time,

under appropriate monetary policy and in the

absence of further shocks to the economy.

“Appropriate monetary policy” is dened as

the future path of policy that each participant

deems most likely to foster outcomes for

economic activity and ination that best

satisfy his or her individual interpretation of

the statutory mandate to promote maximum

employment and price stability.

Part 3

summary of economic Projections

The following material was released after the conclusion of the December12–13, 2023, meeting of

the Federal Open Market Committee.

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their

individual assumptions of projected appropriate monetary policy, December2023

Percent

Variable

Median

Central tendency

Range

2023 2024 2025 2026

Longer

run

2023 2024 2025 2026

Longer

run

2023 2024 2025 2026

Longer

run

Change in real GDP ..... 2.6 1.4 1.8 1.9 1.8 2.5–2.7 1.2–1.7 1.5–2.0 1.8–2.0 1.7–2.0 2.5–2.7 0.8–2.5 1.4–2.5 1.6–2.5 1.6–2.5

September projection 2.1 1.5 1.8 1.8 1.8 1.9–2.2 1.2–1.8 1.6–2.0 1.7–2.0 1.7–2.0 1.8–2.6 0.4–2.5 1.4–2.5 1.6–2.5 1.6–2.5

Unemployment rate ..... 3.8 4.1 4.1 4.1 4.1 3.8 4.0–4.2 4.0–4.2 3.9–4.3 3.8–4.3 3.7–4.0 3.9–4.5 3.8–4.7 3.8–4.7 3.5–4.3

September projection 3.8 4.1 4.1 4.0 4.0 3.7–3.9 3.9–4.4 3.9–4.3 3.8–4.3 3.8–4.3 3.7–4.0 3.7–4.5 3.7–4.7 3.7–4.5 3.5–4.3

PCE ination .......... 2.8 2.4 2.1 2.0 2.0 2.7–2.9 2.2–2.5 2.0–2.2 2.0 2.0 2.7–3.2 2.1–2.7 2.0–2.5 2.0–2.3 2.0

September projection 3.3 2.5 2.2 2.0 2.0 3.2–3.4 2.3–2.7 2.0–2.3 2.0–2.2 2.0 3.1–3.8 2.1–3.5 2.0–2.9 2.0–2.7 2.0

Core PCE ination

..... 3.2 2.4 2.2 2.0 3.2–3.3 2.4–2.7 2.0–2.2 2.0–2.1 3.2–3.7 2.3–3.0 2.0–2.6 2.0–2.3

September projection 3.7 2.6 2.3 2.0 3.6–3.9 2.5–2.8 2.0–2.4 2.0–2.3 3.5–4.2 2.3–3.6 2.0–3.0 2.0–2.9

Memo: Projected

appropriate policy path

Federal funds rate ....... 5.4 4.6 3.6 2.9 2.5 5.4 4.4–4.9 3.1–3.9 2.5–3.1 2.5–3.0 5.4 3.9–5.4 2.4–5.4 2.4–4.9 2.4–3.8

September projection 5.6 5.1 3.9 2.9 2.5 5.4–5.6 4.6–5.4 3.4–4.9 2.5–4.1 2.5–3.3 5.4–5.6 4.4–6.1 2.6–5.6 2.4–4.9 2.4–3.8

N: Projections of change in real gross domestic product (GDP) and projections for both measures of ination are percent changes from the fourth quarter of the previous year to

the fourth quarter of the year indicated. PCE ination and core PCE ination are the percentage rates of change in, respectively, the price index for personal consumption expenditures

(PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year

indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate

to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the federal funds rate

are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate target level for the federal funds rate at the end of the spec-

ied calendar year or over the longer run. The September projections were made in conjunction with the meeting of the Federal Open Market Committee on September19–20,2023.

One participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal funds rate in conjunction with the September19–20, 2023,

meeting, and one participant did not submit such projections in conjunction with the December12–13, 2023, meeting.

1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the average

of the two middle projections.

2. The central tendency excludes the three highest and three lowest projections for each variable in each year.

3. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.

4. Longer-run projections for core PCE ination are not collected.

46 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

Figure 1. Medians, central tendencies, and ranges of economic projections, 2023–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1. The data for the actual values of the

variables are annual.

−3

−2

−1

2018 20192020202120222023202420252026

Median of projections

Central tendency of projections

Range of projections

Actual

Percent

Change in real GDP

Longer

run

2018 2019 2020 2021 2022 2023 2024 2025 2026

Percent

Unemployment rate

Longer

run

2018 2019 2020 2021 2022 2023 2024 2025 2026

Percent

PCE inflation

Longer

run

2018 2019 2020 2021 2022 2023 2024 2025 2026

Percent

Core PCE inflation

Longer

run

MONETARY POLICY REPORT: MARCH 2024 47

Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target

level for the federal funds rate

N: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s

judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the

federal funds rate at the end of the specied calendar year or over the longer run. One participant did not submit

longer-run projections for the federal funds rate.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2023 2024 2025 2026

Longer run

Percent

48 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2023–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1.

0.2−

0.3

0.4−

0.5

0.6−

0.7

0.8−

0.9

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

December projections

September projections

Number of participants

2023

0.2−

0.3

0.4−

0.5

0.6−

0.7

0.8−

0.9

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

Number of participants

2024

0.2−

0.3

0.4−

0.5

0.6−

0.7

0.8−

0.9

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

Number of participants

2025

0.2−

0.3

0.4−

0.5

0.6−

0.7

0.8−

0.9

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

Number of participants

2026

0.2−

0.3

0.4−

0.5

0.6−

0.7

0.8−

0.9

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

Number of participants

Longer run

MONETARY POLICY REPORT: MARCH 2024 49

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2023–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1.

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

4.6−

4.7

Percent range

December projections

September projections

Number of participants

2023

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

4.6−

4.7

Percent range

Number of participants

2024

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

4.6−

4.7

Percent range

Number of participants

2025

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

4.6−

4.7

Percent range

Number of participants

2026

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

4.6−

4.7

Percent range

Number of participants

Longer run

50 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

Figure 3.C. Distribution of participants’ projections for PCE ination, 2023–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1.

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

Percent range

December projections

September projections

Number of participants

2023

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

Percent range

Number of participants

2024

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

Percent range

Number of participants

2025

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

Percent range

Number of participants

2026

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

Percent range

Number of participants

Longer run

MONETARY POLICY REPORT: MARCH 2024 51

Figure 3.D. Distribution of participants’ projections for core PCE ination, 2023–26

N: Denitions of variables and other explanations are in the notes to table 1.

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

3.9−

4.0

4.1−

4.2

Percent range

December projections

September projections

Number of participants

2023

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

3.9−

4.0

4.1−

4.2

Percent range

Number of participants

2024

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

3.9−

4.0

4.1−

4.2

Percent range

Number of participants

2025

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

3.3−

3.4

3.5−

3.6

3.7−

3.8

3.9−

4.0

4.1−

4.2

Percent range

Number of participants

2026

52 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

Figure 3.E. Distribution of participants’ judgments of the midpoint of the appropriate target range for the

federal funds rate or the appropriate target level for the federal funds rate, 2023–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1.

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

5.63−

5.87

5.88−

6.12

6.13−

6.37

Percent range

December projections

September projections

Number of participants

2023

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

5.63−

5.87

5.88−

6.12

6.13−

6.37

Percent range

Number of participants

2024

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

5.63−

5.87

5.88−

6.12

6.13−

6.37

Percent range

Number of participants

2025

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

5.63−

5.87

5.88−

6.12

6.13−

6.37

Percent range

Number of participants

2026

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

5.63−

5.87

5.88−

6.12

6.13−

6.37

Percent range

Number of participants

Longer run

MONETARY POLICY REPORT: MARCH 2024 53

Figure 4.A. Uncertainty and risks in projections of GDP growth

N: The blue and red lines in the top panel show actual values and median projected values, respectively, of the

percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth quarter of

the year indicated. The condence interval around the median projected values is assumed to be symmetric and is based on

root mean squared errors of various private and government forecasts made over the previous 20 years; more information

about these data is available in table 2. Because current conditions may dier from those that prevailed, on average, over

the previous 20 years, the width and shape of the condence interval estimated on the basis of the historical forecast errors

may not reect FOMC participants’ current assessments of the uncertainty and risks around their projections; these

current assessments are summarized in the lower panels. Generally speaking, participants who judge the uncertainty about

their projections as “broadly similar” to the average levels of the past 20 years would view the width of the condence

interval shown in the historical fan chart as largely consistent with their assessments of the uncertainty about their

projections. Likewise, participants who judge the risks to their projections as “broadly balanced” would view the

condence interval around their projections as approximately symmetric. For denitions of uncertainty and risks in

economic projections, see the box “Forecast Uncertainty.”

Median projection and condence interval based on historical forecast errors

−3

−2

−1

2018 2019 2020 2021 2022 2023 2024 2025 2026

Median of projections

70% confidence interval

Actual

Percent

Change in real GDP

FOMC participants’ assessmentsof uncertainty and risksaround their economic projections

Lower Broadly

similar

Higher

December projections

September projections

Number of participants

Uncertainty about GDP growth

Weighted to

downside

Broadly

balanced

Weighted to

upside

December projections

September projections

Number of participants

Risks to GDP growth

54 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

N: The blue and red lines in the top panel show actual values and median projected values, respectively, of the

average civilian unemployment rate in the fourth quarter of the year indicated. The condence interval around the median

projected values is assumed to be symmetric and is based on root mean squared errors of various private and government

forecasts made over the previous 20 years; more information about these data is available in table 2. Because current

conditions may dier from those that prevailed, on average, over the previous 20 years, the width and shape of the

condence interval estimated on the basis of the historical forecast errors may not reect FOMC participants’ current

assessments of the uncertainty and risks around their projections; these current assessments are summarized in the lower

panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar” to the

average levels of the past 20 years would view the width of the condence interval shown in the historical fan chart as

largely consistent with their assessments of the uncertainty about their projections. Likewise, participants who judge the

risks to their projections as “broadly balanced” would view the condence interval around their projections as approxi-

mately symmetric. For denitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

Median projection and condence interval based on historical forecast errors

2018 2019 2020 2021 2022 2023 2024 2025 2026

Median of projections

70% confidence interval

Actual

Percent

Unemployment rate

FOMC participants’ assessmentsof uncertainty and risksaround their economic projections

Lower Broadly

similar

Higher

December projections

September projections

Number of participants

Uncertainty about the unemployment rate

Weighted to

downside

Broadly

balanced

Weighted to

upside

December projections

September projections

Number of participants

Risks to the unemployment rate

MONETARY POLICY REPORT: MARCH 2024 55

Figure 4.C. Uncertainty and risks in projections of PCE ination

N: The blue and red lines in the top panel show actual values and median projected values, respectively, of the

percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of the previous

year to the fourth quarter of the year indicated. The condence interval around the median projected values is assumed to

be symmetric and is based on root mean squared errors of various private and government forecasts made over the

previous 20 years; more information about these data is available in table 2. Because current conditions may dier from

those that prevailed, on average, over the previous 20 years, the width and shape of the condence interval estimated on

the basis of the historical forecast errors may not reect FOMC participants’ current assessments of the uncertainty and

risks around their projections; these current assessments are summarized in the lower panels. Generally speaking,

participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past

20 years would view the width of the condence interval shown in the historical fan chart as largely consistent with their

assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections as

“broadly balanced” would view the condence interval around their projections as approximately symmetric. For

denitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

Median projection and condence interval based on historical forecast errors

2018 2019 2020 2021 2022 2023 2024 2025 2026

Median of projections

70% confidence interval

Actual

Percent

PCE inflation

FOMC participants’ assessmentsof uncertainty and risksaround their economic projections

Lower Broadly

similar

Higher

December projections

September projections

Number of participants

Uncertainty about PCE inflation

Weighted to

downside

Broadly

balanced

Weighted to

upside

December projections

September projections

Number of participants

Risks to PCE inflation

Lower Broadly

similar

Higher

December projections

September projections

Number of participants

Uncertainty about core PCE inflation

Weighted to

downside

Broadly

balanced

Weighted to

upside

December projections

September projections

Number of participants

Risks to core PCE inflation

56 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

Figure 4.D. Diusion indexes of participants’ uncertainty assessments

N: For each SEP, participants provided responses to the question “Please indicate your judgment of the uncertainty

attached to your projections relative to the levels of uncertainty over the past 20 years.” Each point in the diusion indexes

represents the number of participants who responded “Higher” minus the number who responded “Lower,” divided by the

total number of participants. Figure excludes March 2020 when no projections were submitted.

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Diffusion index

Change in real GDP

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Diffusion index

Unemployment rate

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Diffusion index

PCE inflation

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Diffusion index

Core PCE inflation

MONETARY POLICY REPORT: MARCH 2024 57

Figure 4.E. Diusion indexes of participants’ risk weightings

N: For each SEP, participants provided responses to the question “Please indicate your judgment of the risk

weighting around your projections.” Each point in the diusion indexes represents the number of participants who

responded “Weighted to the Upside” minus the number who responded “Weighted to the Downside,” divided by the total

number of participants. Figure excludes March 2020 when no projections were submitted.

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017201820192020202120222023

Diffusion index

Change in real GDP

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017201820192020202120222023

Diffusion index

Unemployment rate

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017201820192020202120222023

Diffusion index

PCE inflation

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017201820192020202120222023

Diffusion index

Core PCE inflation

58 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

Figure 5. Uncertainty and risks in projections of the federal funds rate

: The blue and red lines are based on actual values and median projected values, respectively, of the Committee’s

rget for the federal funds rate at the end of the year indicated. The actual values are the midpoint of the target range; the

dian projected values are based on either the midpoint of the target range or the target level. The condence interval

ound the median projected values is based on root mean squared errors of various private and government forecasts

mad

e over the previous 20 years. The condence interval is not strictly consistent with the projections for the federal funds

te, primarily because these projections are not forecasts of the likeliest outcomes for the federal funds rate, but rather

ojections of participants’ individual assessments of appropriate monetary policy. Still, historical forecast errors provide

a b

road sense of the uncertainty around the future path of the federal funds rate generated by the uncertainty about the

macr

oeconomic variables as well as additional adjustments to monetary policy that may be appropriate to oset the eects

of s

hocks to the economy.

he condence interval is assumed to be symmetric except when it is truncated at zero - the bottom of the lowest target

nge for the federal funds rate that has been adopted in the past by the Committee. This truncation would not be intended

o indicate the likelihood of the use of negative interest rates to provide additional monetary policy accommodation if

ing so was judged appropriate. In such situations, the Committee could also employ other tools, including forward

idance and large-scale asset purchases, to provide additional accommodation. Because current conditions may dier

om those that prevailed, on average, over the previous 20 years, the width and shape of the condence interval estimated

n the basis of the historical forecast errors may not reect FOMC participants’ current assessments of the uncertainty and

sks around their projections.

* The condence interval is derived from forecasts of the average level of short-term interest rates in the fourth quarter

of t

he year indicated; more information about these data is available in table 2. The shaded area encompasses less than a

70 percent condence interval if the condence interval has been truncated at zero.

2018 2019 2020 2021 2022 2023 2024 2025 2026

Midpoint of target range

Median of projections

70% confidence interval*

Actual

Percent

Federal funds rate

MONETARY POLICY REPORT: MARCH 2024 59

Table 2. Average historical projection error ranges

Percentage points

Variable 2023 2024 2025 2026

Change in real GDP

....... ±0.8 ±1.7 ±2.1 ±2.2

Unemployment rate

....... ±0.1 ±1.1 ±1.6 ±2.0

Total consumer prices

..... ±0.3 ±1.6 ±1.6 ±1.7

Short-term interest rates

... ±0.1 ±1.4 ±1.9 ±2.5

N: Error ranges shown are measured as plus or minus the root mean squared

error of projections for 2003 through 2022 that were released in the winter by various

private and government forecasters. As described in the box “Forecast Uncertainty,”

under certain assumptions, there is about a 70 percent probability that actual

outcomes for real GDP, unemployment, consumer prices, and the federal funds rate

will be in ranges implied by the average size of projection errors made in the past.

For more information, see David Reifschneider and Peter Tulip (2017), “Gauging

the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The

Federal Reserve’s Approach,” Finance and Economics Discussion Series 2017-020

(Washington: Board of Governors of the Federal Reserve System, February), https://

dx.doi.org/10.17016/FEDS.2017.020.

1. Denitions of variables are in the general note to table1.

2. Measure is the overall consumer price index, the price measure that has been

most widely used in government and private economic forecasts. Projections are

percent changes on a fourth quarter to fourth quarter basis.

3. For Federal Reserve sta forecasts, measure is the federal funds rate. For other

forecasts, measure is the rate on 3-month Treasury bills. Projection errors are cal cu-

lated using average levels, in percent, in the fourth quarter.

60 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

reported in table2 would imply a probability of about

70percent that actual GDP would expand within a

range of 2.2 to 3.8percent in the current year, 1.3 to

4.7percent in the second year, 0.9 to 5.1percent in

the third year, and 0.8 to 5.2percent in the fourth year.

The corresponding 70percent con dence intervals

for overall in ation would be 1.7 to 2.3percent in

the current year, 0.4 to 3.6percent in the second and

third years, and 0.3 to 3.7percent in the fourth year.

Figures 4.A through 4.C illustrate these con dence

bounds in “fan charts” that are symmetric and centered

on the medians of FOMC participants’ projections for

GDP growth, the unemployment rate, and in ation.

However, in some instances, the risks around the

projections may not be symmetric. In particular, the

unemployment rate cannot be negative; furthermore,

the risks around a particular projection might be tilted

to either the upside or the downside, in which case

the corresponding fan chart would be asymmetrically

positioned around the median projection.

Because current conditions may differ from those

that prevailed, on average, over history, participants

provide judgments as to whether the uncertainty

attached to their projections of each economic variable

is greater than, smaller than, or broadly similar to

typical levels of forecast uncertainty seen in the past

20years, as presented in table2 and re ected in the

widths of the con dence intervals shown in the top

panels of  gures 4.A through 4.C. Participants’ current

assessments of the uncertainty surrounding their

projections are summarized in the bottom-left panels

The economic projections provided by the members

of the Board of Governors and the presidents of

the Federal Reserve Banks inform discussions of

monetary policy among policymakers and can aid

public understanding of the basis for policy actions.

Considerable uncertainty attends these projections,

however. The economic and statistical models and

relationships used to help produce economic forecasts

are necessarily imperfect descriptions of the real world,

and the future path of the economy can be affected

by myriad unforeseen developments and events. Thus,

in setting the stance of monetary policy, participants

consider not only what appears to be the most likely

economic outcome as embodied in their projections,

but also the range of alternative possibilities, the

likelihood of their occurring, and the potential costs to

the economy should they occur.

Table 2 summarizes the average historical accuracy

of a range of forecasts, including those reported in

past Monetary Policy Reports and those prepared

by the Federal Reserve Board’s staff in advance of

meetings of the Federal Open Market Committee

(FOMC). The projection error ranges shown in the

table illustrate the considerable uncertainty associated

with economic forecasts. For example, suppose a

participant projects that real gross domestic product

(GDP) and total consumer prices will rise steadily at

annual rates of, respectively, 3percent and 2percent.

If the uncertainty attending those projections is similar

to that experienced in the past and the risks around

the projections are broadly balanced, the numbers

Forecast Uncertainty

(continued)

MONETARY POLICY REPORT: MARCH 2024 61

assessments of appropriate monetary policy and are

on an end-of-year basis. However, the forecast errors

should provide a sense of the uncertainty around the

future path of the federal funds rate generated by the

uncertainty about the macroeconomic variables as

well as additional adjustments to monetary policy that

would be appropriate to offset the effects of shocks to

theeconomy.

If at some point in the future the con dence interval

around the federal funds rate were to extend below

zero, it would be truncated at zero for purposes of

the fan chart shown in  gure5; zero is the bottom of

the lowest target range for the federal funds rate that

has been adopted by the Committee in the past. This

approach to the construction of the federal funds rate

fan chart would be merely a convention; it would

not have any implications for possible future policy

decisions regarding the use of negative interest rates to

provide additional monetary policy accommodation

if doing so were appropriate. In such situations, the

Committee could also employ other tools, including

forward guidance and asset purchases, to provide

additional accommodation.

While  gures 4.A through 4.C provide information

on the uncertainty around the economic projections,

 gure1 provides information on the range of views

across FOMC participants. A comparison of  gure1

with  gures 4.A through 4.C shows that the dispersion

of the projections across participants is much smaller

than the average forecast errors over the past 20years.

of those  gures. Participants also provide judgments as

to whether the risks to their projections are weighted

to the upside, are weighted to the downside, or

are broadly balanced. That is, while the symmetric

historical fan charts shown in the top panels of  gures

4.A through 4.C imply that the risks to participants’

projections are balanced, participants may judge that

there is a greater risk that a given variable will be above

rather than below their projections. These judgments

are summarized in the lower-right panels of  gures 4.A

through 4.C.

As with real activity and in ation, the outlook

for the future path of the federal funds rate is subject

to considerable uncertainty. This uncertainty arises

primarily because each participant’s assessment of

the appropriate stance of monetary policy depends

importantly on the evolution of real activity and

in ation over time. If economic conditions evolve

in an unexpected manner, then assessments of the

appropriate setting of the federal funds rate would

change from that point forward. The  nal line in

table2 shows the error ranges for forecasts of short-

term interest rates. They suggest that the historical

con dence intervals associated with projections

of the federal funds rate are quite wide. It should

be noted, however, that these con dence intervals

are not strictly consistent with the projections for

the federal funds rate, as these projections are not

forecasts of the most likely quarterly outcomes but

rather are projections of participants’ individual

AFE advanced foreign economy

BTFP Bank Term Funding Program

COVID-19 coronavirus disease 2019

CRE commercial real estate

DI depository institution

ELB eective lower bound

EME emerging market economy

EPOP ratio employment-to-population ratio

FDIC Federal Deposit Insurance Corporation

FOMC Federal Open Market Committee; also, the Committee

GDI gross domestic income

GDP gross domestic product

JOLTS Job Openings and Labor Turnover Survey

MBS mortgage-backed securities

MMF money market fund

ON RRP overnight reverse repurchase agreement

OPEC Organization of the Petroleum Exporting Countries

PCE personal consumption expenditures

repo repurchase agreement

SOMA System Open Market Account

S&P Standard & Poor’s

VIX implied volatility for the S&P 500 index

abbreviations

Board of Governors of the Federal Reserve System

For use at 11:00 a.m. EST

March 1, 2024

Monetary Policy rePort

March 1, 2024