Financial market sentiment was little changed over the intermeeting period against the backdrop of evolving U.S. election and fiscal outlooks, as well as rising COVID-19 cases in the United States and Europe. Economic activity abroad rebounded sharply in the third quarter following a rollback of pandemic-related restrictions. Housing-sector activity advanced in the third quarter, with real residential investment and home sales both moving above their first‑quarter levels. Fed Chair Jerome Powell called this strategy “a flexible form of average inflation targeting”—which Fed officials are calling FAIT—in an August … In recent months, however, the pace of improvement had moderated, with slower growth expected for the fourth quarter. Gross institutional leveraged loan issuance continued to pick up in September but remained below its average pace in 2019. While participants judged that immediate adjustments to the pace and composition of asset purchases were not necessary, they recognized that circumstances could shift to warrant such adjustments. With market functioning seen as having largely recovered, many participants indicated that the role of asset purchases had shifted more toward fostering accommodative financial conditions for households and businesses to support the Committee's employment and inflation goals. (See the box "Developments on the Federal Reserve's Balance Sheet" in Part 2.). At the same time, small businesses' liquidity needs were high and appeared likely to increase further, with the most recent Census Bureau Small Business Pulse Survey pointing to a majority of small businesses having no more than two months of cash on hand and many small businesses anticipating some need for additional financial assistance in the next six months. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum-employment and price-stability goals. (See the box "Federal Reserve Actions to Ensure Smooth Functioning of Treasury and MBS Markets" in Part 2.) Federal nondefense purchases fell especially sharply, largely reflecting a step‑down in lender processing fees associated with the Paycheck Protection Program (PPP). Payroll employment growth remained solid in the second half of 2019, and while the pace of job gains during the year as a whole was somewhat slower than in 2018, it was faster than what is needed to provide jobs for new entrants to the labor force. Measures of inflation compensation based on Treasury Inflation-Protected Securities (TIPS) edged up, on net, remaining close to their pre-pandemic levels. The 12-month measure of PCE inflation that excludes food and energy items (so-called core inflation), which historically has been a better indicator of where overall inflation will be in the future than the total figure, fell from 1.8 percent in February to 1.0 percent in April. Despite the sharp slowing in inflation, survey-based measures of longer-run inflation expectations have generally been stable at relatively low levels. Communicating this symmetric inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances. Inflation. The pandemic poses acute risks to the survival of many small businesses. The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system. A few participants were hesitant to make changes in the near term to the guidance for asset purchases and pointed to considerable uncertainty about the economic outlook and the appropriate use of balance sheet policies given that uncertainty. Consumer borrowing also fell as spending slumped. The amount of Federal Reserve repurchase agreements outstanding remained at zero over the intermeeting period, as dealers were able to obtain more attractive rates in the private market. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Most of the participants who commented noted that releasing all SEP materials at the time of the postmeeting statement would provide greater context for the policy decision, highlight the risk-management factors relevant for the decision, or further emphasize the degree of uncertainty around participants' modal projections. The staff noted that financial market participants generally expected the Committee to continue its net asset purchases at the current pace through next year and at a reduced pace in subsequent years. Yields on two-year nominal Treasury securities were little changed over the intermeeting period, while longer-term yields increased modestly, on net, reportedly reflecting market participants' reassessments of the election outcome and the outlook for fiscal policy. Total real government purchases declined in the third quarter. Survey-based expectations favored the first increase in the federal funds rate to occur in 2024. This document summarizes comments received from contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials. Board of Governors of the Federal Reserve System. Specifically, at two meetings in March, the FOMC lowered the target range for the federal funds rate by a total of 1-1/2 percentage points, bringing it to the current range of 0 to 1/4 percent. All members agreed to maintain the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. Small business loan performance generally deteriorated further over the intermeeting period. Participants continued to see the uncertainty surrounding the economic outlook as quite elevated, with the path of the economy highly dependent on the course of the virus; on how individuals, businesses, and public officials responded to it; and on the effectiveness of public health measures to address it. While many business contacts, particularly those in the durable goods or housing industries, reported progress in adapting to the pandemic or improved business conditions, others—especially those with ties to small businesses and the hospitality, aviation, and nonresidential construction industries—were still seeing very difficult circumstances. This report was prepared at the Federal Reserve Bank of New York based on information collected on or before January 6, 2020. Financial stability. Discussion on Recommended Changes to the Summary of Economic Projections Labor market conditions improved further in September, although the pace of gains eased and employment continued to be well below its level at the beginning of the year. Aggressive fiscal and monetary policy responses in the United States and abroad, however, helped boost sentiment and improve market functioning. Fed Listens. The severe economic repercussions of the pandemic have been especially visible in the labor market. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. Staff Economic Outlook In addition, demand for C&I loans reportedly weakened in the third quarter. See note 16. Participants discussed the FOMC's asset purchases, including the role they are playing in supporting the Committee's maximum-employment and price-stability goals. Domestic demand supported the recovery, and in Asia there was also a strong rebound of exports, especially of electronics and, more recently, autos. Accordingly, participants saw the ongoing careful consideration of potential next steps for enhancing the Committee's guidance for its asset purchases as appropriate. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Note: The Committee did not reaffirm this statement in January 2020 in light of its ongoing review of its monetary policy strategy, tools, and communications practices. Implied volatility in the equity market moved higher during the intermeeting period, reflecting uncertainties associated with the U.S. election and the future path of fiscal policy as well as concerns about the trajectory of COVID-19 cases. This document summarizes comments received from contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials. The resulting take­â€‘up of economic slack was in turn expected to cause inflation to increase gradually, and the inflation rate was projected to moderately overshoot 2 percent for some time in the years beyond 2023 as monetary policy remained accommodative. The substantial maturity and liquidity transformations undertaken by some nonbank financial institutions—such as prime MMFs and corporate bond and bank loan mutual funds—were also discussed. Consumer price inflation has slowed abruptly. The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. The 12-month change in the price index for PCE was just 0.5 percent in April. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. For commercial real estate (CRE) financed through capital markets, financing conditions remained accommodative over the intermeeting period. Wright, Associate Economists, Lorie K. Logan, Manager, System Open Market Account, Ann E. Misback, Secretary, Office of the Secretary, Board of Governors, Matthew J. Eichner,2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors, Sally Davies and Brian M. Doyle, Deputy Directors, Division of International Finance, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors, Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors, Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors, William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Kurt F. Lewis, Ellen E. Meade, and Chiara Scotti, Special Advisers to the Board, Division of Board Members, Board of Governors, Linda Robertson, Assistant to the Board, Division of Board Members, Board of Governors, Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board of Governors, Marnie Gillis DeBoer, David López-Salido, and Min Wei, Associate Directors, Division of Monetary Affairs, Board of Governors; Glenn Follette, Associate Director, Division of Research and Statistics, Board of Governors; Paul Wood, Associate Director, Division of International Finance, Board of Governors, Andrew Figura, Deputy Associate Director, Division of Research and Statistics, Board of Governors; Christopher J. Gust, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Jeffrey D. Walker,2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors, Brian J. Bonis, Michiel De Pooter, Zeynep Senyuz,2 and Rebecca Zarutskie,2 Assistant Directors, Division of Monetary Affairs, Board of Governors; Paul Lengermann, Assistant Director, Division of Research and Statistics, Board of Governors, Matthias Paustian, Assistant Director and Chief, Division of Research and Statistics, Board of Governors, Alyssa G. Anderson,2 Benjamin K. Johannsen,2 and Matthew Malloy,2 Section Chiefs, Division of Monetary Affairs, Board of Governors; Penelope A. Beattie,2 Section Chief, Office of the Secretary, Board of Governors, David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors, Michele Cavallo, Dobrislav Dobrev, Anna Orlik, and Judit Temesvary,2 Principal Economists, Division of Monetary Affairs, Board of Governors, Arsenios Skaperdas,2 Senior Economist, Division of Monetary Affairs, Board of Governors, Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors, Gregory L. Stefani, First Vice President, Federal Reserve Bank of Cleveland, Kartik B. Athreya, Joseph W. Gruber, Glenn D. Rudebusch, Daleep Singh, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Richmond, Kansas City, San Francisco, New York, and St. Louis, respectively, Spencer Krane, Antoine Martin,2 Paolo A. Pesenti, and Nathaniel Wuerffel,2 Senior Vice Presidents, Federal Reserve Banks of Chicago, New York, New York, and New York, respectively, Satyajit Chatterjee, Mark J. Jensen, Dina Marchioni,2 Matthew D. Raskin,2 and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Philadelphia, Atlanta, New York, New York, and New York, respectively, Daniel Cooper, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston, Alex Richter, Senior Economist and Advisor, Federal Reserve Bank of Dallas, Ryan Bush,2 Markets Manager, Federal Reserve Bank of New York. 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