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April 26–27, 2016

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Appendix 1: Materials used by Messrs. Fuhrer, Adrian, and Sim

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Class II FOMC – Restricted (FR)

Material for the Briefings on

The Relationship between Monetary Policy and Financial Stability

Jeff Fuhrer, Tobias Adrian, and Jae Sim
April 26, 2016

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M aterial for Briefing on

T he Linkages Among Monetary Policy,,
M acroprudential Policy a nd F inancial
Stability

Jeff Fuhrer, Joe Haubrich and Joe Peek
April 26, 2016

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Exhibit 2

Key features of financial instability
1. Rapid growth of debt
2. Rapid asset price appreciation
• Future bouts of instability will occur, even with
improved regulations
– Strong capital buffers and other structural tools will make the
system more resilient
– But will not eliminate instability

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How to mitigate financial instability
1. Macroprudential tools: Evidence on Efficacy

Exhibit 3

• If macroprudential tools are fully effective, little need
to consider using monetary policy to address financial
instability
• But the effectiveness of macroprudential tools is
uncertain
• Evidence on cyclical tools used by advanced foreign
economies (AFEs)
– Most countries choose not to use monetary policy to address
financial instability
– Macroprudential tools may be effective in slowing borrowing.
Effects on price appreciation are less clear.
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Exhibit 4

Experience with LTV caps
LTV caps and house prices, select developed economies
Canada
begins
LTV cap

Canada

140

House price indexes, 2010=100

Spain

Sweden,
begins LTV cap,
Singapore
lowers LTV to 80%

Sweden

120

Singapore

100

80

Spain, Singapore
LTV caps
begin (2000)

60

40
2000

2002

2004

2006

2008

2010

2012

2014

Sources: OECD (Canada, Spain, Sweden house price indexes), Singapore Housing and Development Board (Singapore price
index), Haver Analytics, Cerutti et al (2015, dating of loan-to-value caps).

• Caps don’t reliably stop or slow house price appreciation
• Perhaps because implementation has been too timid?
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How to mitigate financial instability
2. Monetary policy (MP)

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Exhibit 5

• Can MP slow or avoid instability and crises?
– Can policymakers detect unsustainable increases in debt and
asset prices early enough?
– Can monetary policy reliably affect asset prices and debt
accumulation?
– These are also challenges for macroprudential policy

• Will use of monetary policy to address financial
instability cause too much collateral damage to the
economy?
– Svensson (2015): Cost of damage done to the economy
greater than benefit in improved financial stability
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Interactions between monetary and
macroprudential policy
• Long-run goals coincide,
plus or minus
• Short-run goals, tools
differ
• Some coordination is
likely necessary

Exhibit 6

Employment,
inflation

Monetary
Policy

– Minimum: Take into
account effects of each
other’s actions in setting
policies
– More coordination would
be helpful, given the
feedbacks

Macroprudential
Policy

Financial
stability
Primary policy effects
Secondary policy effects, macroprudential
Secondary policy effects, MP

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Monetary and macroprudential interactions:
Institutional implications

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Exhibit 7

• Same committee, or different committees?
– Within the same institution, or different institutions?

• UK model
– Separate committees within the same institution
– High-level overlap in membership fosters collaboration and
fairly tight coordination of policies

• Whatever the structure, strong cooperation would likely
be helpful

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Exhibit 8

What to conclude?
• Uncertainty about macroprudential tools means we
must consider monetary policy as a tool
– But we view it as a less-reliable “third resort”

• We can rely most on building resilience—increasing
capital buffers, conducting stress tests, as we have done
• Macroprudential tools would be the first cyclical resort
to combating financial instability
– But we need to do more to build our confidence in
macroprudential tools

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A “to-do” list to improve confidence in
macroprudential tools

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Exhibit 9

• Expand the available set of macroprudential tools.
• Shorten implementation lags where possible.
• Add to extant research on the effectiveness of tools
and new transmission channels.
• Consider better coordination of monetary and
macroprudential policies.
• Assess the potential for regulatory arbitrage, and
developing strategies to mitigate it.
• Establish independence of macroprudential regulators.

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Financial Vulnerability and Monetary Policy:
The Empirical Evidence

Tobias Adrian, Nina Boyarchenko, Richard Crump, Matthew Plosser
April 26, 2016

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Exhibit 1: Two Views
1) Monetary policy and financial stability are separate
o Transmission of monetary policy is via interest rates
o Policy expectations summarize all market information
o Risk premia are constant or exogenous
2) Monetary policy and financial stability interact
o Monetary policy impacts risk taking of financial intermediaries
o Risk taking determines financial conditions and vulnerabilities
o Financial vulnerabilities matter for macroeconomic outcomes
¾ The second view is the risk-taking channel of monetary policy
o We review existing and new evidence

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Exhibit 2: Credit Channel of Monetary Policy
o A lower short-term policy interest rate spurs lending and spending
in pursuit of price stability and full employment
o The credit channel features an amplification mechanism beyond
the interest rate channel, but does not incorporate risk taking of
financial institutions
o Jordà, Schularick, and Taylor (2013, 2015) find sizable effects of
lower short-term interest rates on mortgage credit and house prices
o Moreover, credit growth can threaten financial stability:
o A one standard deviation higher credit growth associated with
three percent lower GDP in crises
o However, increasing interest rates preemptively to slow credit or
house price growth involves tradeoffs

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Exhibit 3: The Risk-Taking Channel of Monetary Policy

1) Monetary policy influences risk taking of financial institutions
o Risk taking determines leverage and maturity transformation,
which are vulnerabilities for the system
2) Risk premia are endogenous and time varying
o Pricing of risk determines financial conditions
3) Endogenous risk taking increases downside risk to real activity
o Financial vulnerabilities create risks to the dual mandate

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Exhibit 4:
Existing Evidence on the Risk-Taking Channel
A number of studies have examined different dimensions of risk
taking in the banking sector, finding that:
o U.S. banks ease lending standards and charge smaller premiums
to riskier borrowers during periods of easy monetary policy
o Paligorova and Santos (2012), Maddaloni and Peydró (2011)

o U.S. banks’ ex-ante risk taking is negatively associated with
increases in short-term policy interest rates
o Dell’Ariccia, Laeven and Suarez (2016)

o Nonbank financial intermediation tends to expand when monetary
policy is expansionary
o Adrian, Moench and Shin (2010)

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Exhibit 5:
Variability and FOMC Announcements 1994-2007
Absolute two-day change
Standard Deviation

1.25

1
.75
.5

Non-announcement days

Announcement days

ACM: Adrian Crump Moench (2013), BHP: Boyarchenko Haddad Plosser 2016)

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Exhibit 6: Measuring Financial Vulnerability

o We use Adrian and Brunnermeier’s CoVaR to measure vulnerability
o CoVaR is defined as the Value-at-Risk of the entire financial system
conditional on the distress of a particular financial institution
o CoVaR as a summary measure correlates strongly with leverage,
maturity transformation, and other measures of vulnerability
o Financial vulnerabilities can create systemic risk – the risk that the
intermediation capacity of the financial system becomes impaired

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Exhibit 7: Vulnerability and FOMC Announcements
We estimate the sensitivity of bank equity returns on FOMC
announcement days to the expected path of interest rates,
measures of risk premia, and CoVaR
o A 25 basis point increase in the expected path of interest rates on
an announcement day lowers bank equity returns by 36 to 50 basis
points
o A 15 percent increase in the risk premium on an announcement day
lowers bank equity returns by 8 to 13 basis points
o Comparing the most and least vulnerable banks, the decline in bank
returns is 20 to 24 percent larger for either of these increases
o Our results thus show that there are significant interactions between
the monetary policy announcements, the evolution of risk and risk
premia, and the performance of relatively vulnerable institutions

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Exhibit 8: Conclusion
o The empirical evidence is consistent with the risk-taking channel of
monetary policy transmission:
o Easier policy can increase risk taking, compress risk premia,
and thus could create vulnerabilities
o These findings suggest further work to quantify the effect of risk
taking on downside risk to the dual mandate

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Monetary Policy and Financial Stability:
Lessons from DSGE Models
Bora Durdu (FRB), Matthias Paustian (FRB), Jae Sim (FRB)

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Exhibit 1

Key question

• Should monetary policy react to financial
imbalances? Lessons from DSGE models.

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Exhibit 2

Motivations for using monetary policy
• Frictions in credit markets may contribute to excessive volatility
in employment or inflation
– Appropriate for monetary policy to lean against excessive credit
fluctuations even for traditional dual mandate (Woodford (2012), Borio
and Zhu (2012))

• Often rationalized with “risk-taking channel” of monetary policy
– Low interest rate leads to high leverage
– High leverage incentivizes high-risk projects
– A blunt tool, but “gets in all the cracks”
– Augment Taylor rule with credit variable

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Exhibit 3

Monetary vs. macroprudential policies in DSGE
models
• Monetary policy is an indirect tool to address the
underlying microeconomic distortions
– Some macroprudential policies may be more direct

• Coordination of monetary and macroprudential
policies may improve economic outcomes

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Exhibit 4

Measurement of Financial Imbalances:
Nonfinancial Sector Credit-to-GDP Gap

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Exhibit 5

Kiley and Sim (2015)
• A model in which financial intermediaries choose the
leverage ratio to maximize their own profits
– But fail to take into account social costs of their choices

• Estimated with features suited for monetary policy
analysis
• Allows for a quantitative evaluation of the potential
for monetary policy to lean against the credit cycle

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Exhibit 6

Inefficient Credit Cycle
• Leaning against the wind improves outcomes

Note: Inertial Taylor 99 rule coefficients are 1.5, 1.0 and 0.85 for inflation rate, output gap
and lagged interest rate, respectively. The augmented rule is identical with the Taylor rule
except that it has an additional term on the credit-to-GDP with a coefficient of 0.5.

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Exhibit 7

Overall Assessment of the role for leaning against
the credit cycle

INF

σ2 : Inflation gap variance

24

Taylor
Augmented Taylor

16

8

0

Ramsey MP/MaP
0

Ramsey MP
4
8
2
σGAP: Output gap variance

12

Note: Each point in the volatility frontiers corresponds to
the outcome when all policy coefficients are optimized
under different weights on inflation gap and output gap
in the policymakers’ quadratic loss function.

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Exhibit 8

Policy Coordination
• De Paoli and Paustian (2016): a setting where
separate institutions conduct monetary and
macroprudential policy
• Coordination problems tend to be smaller

– If both authorities given effective tools
– If commitment technologies available
– If prudential policy less frequently adjusted

• Literature still developing, no consensus results

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If you would like to comment, it would be helpful if you would address some or all of the following questions:
1. Among economists there is a growing agreement that macroprudential policy measures are the primary
instruments through which policymakers should promote financial stability and address any such concerns. In
light of this emerging consensus,
a. Do you view the set of macroprudential tools available to policymakers in the United States as sufficient
to ensure financial stability most of the time?
b. Would you draw any distinctions between the sufficiency and efficacy of tools available for addressing
“through-the-cycle” risks and tools available for addressing risks that are more cyclical (or time-varying)?
c. Does the dispersion of responsibilities for regulation of the different sectors of the U.S. financial system,
or other challenges associated with coordination of macroprudential actions, factor significantly in your
assessment of the sufficiency and efficacy of macroprudential tools?
2. Given your assessment of the sufficiency and efficacy of macroprudential tools,
a. Would you support using the stance of monetary policy to pursue financial-stability goals, even if such
efforts would imply deviations from the FOMC’s dual mandate for some time?
b. If so, what conditions do you view as most likely to call for such monetary policy adjustments, and do you
view such conditions as likely over the next several years?

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Appendix 2: Materials used by Mr. Potter and Ms. Logan

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Class II FOMC – Restricted (FR)

Material for the Briefing on

Financial Developments and
Open Market Operations

Simon Potter and Lorie Logan
April 26, 2016

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Exhibit 1

Class II FOMC – Restricted (FR)

(1) Changes in Financial Conditions

(2) Importance of Factors Explaining
Recent Financial Market Volatility*

Since
March
FOMC

Since
August
RMB Deval

U.S. 2-Year Treasury

-15 bps

+10 bps

U.S. 10-Year Treasury

-8 bps

-34 bps

3

U.S. Broad T.W. Dollar

-2.0 %

+1.2 %

2

S&P 500 Index

+3.8 %

-0.6 %

High-Yield OAS

-59 bps

+73 bps

Brent Crude

+16.4 %

-10.5 %

5-Year, 5-Year BE

+9 bps

-30 bps

Source: Barclays, Bloomberg, Federal Reserve Board of Governors

High
Low

March Average

4

1
U.S.

Foreign

U.S.

Growth and
Inflation

Chinese
FX

Oil
Vol

Foreign

Central Bank
Policy

*Based on all responses from the March and April Surveys of Primary Dealers
and Market Participants. Ranges reflect responses to the April Survey.
Source: Federal Reserve Bank of New York

(3) Change to Next-Year Ahead Median SEP Dot and
U.S. Two Year Yield*
Change in U.S. 2-Year Yield (bps)

April Average

Rating
5

(4) Market-Implied Probability of Rate Hike*
Hike at or Before December 2015
Hike at or Before June 2016
Day before September 2015 FOMC
Day before March 2016 FOMC

Percent

+25
100
+20
80
+15
+10
60
R² = 0.4925
Dec. ’14
+5
40
+0
+80 20
-80
-40
+40
-5 +0
Mar. ’15
-10
0
-15
Mar. ’16
-66
-56
-46
-36
-26
-16
-6
Days Before Meeting
-20
*Probability of a hike at or before Dec. uses the median expected EFFR post-25
liftoff from the December Survey of Primary Dealers and Market Participants.
Next Year-End Change in Median SEP (bps)
Probability of a hike at or before June assumes a 25-bps increase in the EFFR
from recent levels. Based on Jan. ’16 and Jul. ’16 fed funds futures contracts.
Source: Bloomberg, Desk Calculations

*Daily changes on SEP release since 2012.
Source: Bloomberg, Federal Reserve Board of Governors

(5) Implied Federal Funds Rate Path*

Percent

3.0

Market-Implied: Before Aug. RMB Deval
Market-Implied: Before March FOMC
Market-Implied: Current
March SEP
April Survey Modal Path (Mean)
April Survey Unconditional Path (Mean)

2.5

(6) G-7 Yield Curves
Percent

3.0
2.5

2.0
1.5

2.0
1.5

1.0

1.0

0.5

0.5

0.0

0.0
04/22/16

G-7 Ex-U.S. Yield Range
U.S.
Germany
U.K.
Japan

0.5
11/22/16

06/22/17

01/22/18

08/22/18

*Market-implied paths derived from federal funds and Eurodollar futures,
survey paths are the average response from the April Survey of Primary
Dealers and Market Participants.
Source: Bloomberg, Desk Calculations, Federal Reserve Board of Governors

1.0
0

5

Source: Bloomberg

10

15
Years

20

25

30

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Exhibit 2

Class II FOMC – Restricted (FR)

(7) Two-Year Rate Differential and Dollar Index
BPS**

50

Two-Year Rate Differential* (LHS)
Bloomberg Dollar Index (RHS)
Chair Yellen Speech
March FOMC

Brent Crude (LHS)

30
20
Pres. Dudley
Interview

0
-10
07/01/15

09/01/15

11/01/15

110 120
100
108
80
106 60
104 40
102 01/01/15
PPTS

100

9

98

7

01/01/16 03/01/16

*Computed as U.S. two-year yield less weighted average of two-year yields of
countries using weights comparable to Bloomberg dollar index.
**Cumulative change in interest rate differentials since 06/30/15.
Source: Bloomberg, Desk calculations

(9) Six-Month Onshore RMB Risk
Reversals and ATM Volatility*

PPTS

6
5
4
3

March
FOMC

1
0
01/01/15

4
2
0

05/01/15

09/01/15

01/01/16

*Risk reversal is defined as the implied volatility for 25 delta call options less
the implied volatility for 25 delta put options on the USD-CNY.
Source: Bloomberg

Since
Easing*

Euro Area
Euro-Dollar
5Y-5Y Inflation Swaps
Euro Stoxx Bank Index
Credit Spread

+1.0 %
-7 bps
-0.7 %
-8 bps

+2.0 %
-8 bps
+4.2 %
-23 bps

Japan
Dollar-Yen
5Y-5Y Inflation Swaps
Topix Banks Index
Credit Spread

-1.2 %
+20 bps
+1.0 %
-13 bps

-5.9 %
-29 bps
-10.5 %
-23 bps

*Changes for Euro Area asset prices taken from day before the 3/10/16 ECB
meeting and for Japanese asset prices taken from day before the 01/29/16
BoJ meeting.
Source: Bloomberg, Markit iTraxx

107
100
93
86
79

Aug. RMB
Devaluation
05/01/15

09/01/15
HY OAS

01/01/16

05/01/15

09/01/15

01/01/16

5
3
01/01/15

Source: Barclays, Bloomberg

Equity Funds (LHS)*
Bond Funds (LHS)*
EM FX (RHS)**

$ Billions

32
24
16
8
0
-8
-16
-24
-32
01/01/13

Indexed to
01/01/13

105
100
95
90
85

80
75
70
10/01/13

07/01/14

04/01/15

01/01/16

*Monthly values aggregated from weekly data. April ’16 scaled for day count.
**EM currency pairs against the dollar weighted according to the Broad TradeWeighted Dollar Index.
Source: Desk Calculations, Emerging Portfolio Fund Research, Federal
Reserve Board of Governors

(11) Asset Price Changes
Since March
FOMC

March FOMC

Indexed to
01/01/15

(10) Emerging Market Fund Flows Ex. China

CNY 25-Delta, 6-Month Risk Reversal (LHS)
6-Month ATM Volatility (RHS)
Increased Demand for
Protection Against RMB
PPTS
Jan. Deval.
Depreciation
12
Fears Start
10
Aug. RMB
8
Deval.
6

2

S&P 500 Index (RHS)

Indexed to Indexed to
06/30/15
01/01/15

40

10

(8) Oil, S&P 500 Index, High-Yield Credit OAS

PPTS

(12) Three-Month GBP-USD
25-Delta Risk Reversals*

0.0
-0.5
-1.0
-1.5
-2.0
-2.5
U.K. Referendum
-3.0
Increased Demand for
Enters 3-Month
-3.5
Window
Protection Against
-4.0
GBP Depreciation
-4.5
against USD
-5.0
01/01/15
05/01/15
09/01/15
01/01/16
*Risk reversal is defined as the implied volatility for 25 delta call options less
the implied volatility for 25 delta put options on the GBP-USD.
Source: Bloomberg

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Exhibit 3

Class II FOMC – Restricted (FR)

(13) Money Market Rates*

(14) Overnight RRPs Outstanding

FR 2420 EFFR
GCF
Tri-Party Ex. GCF and RRP**
3-Month Treasury Bill Rate

BPS

75

$ Billions
BPS

75

500

50

50

300

25

25

200

0
0
11/01/15 12/01/15 01/01/16 02/01/16 03/01/16 04/01/16
*Light dashed vertical lines indicate month-ends; dark dashed lines indicate
quarter-ends.
**Excludes intra-bank transactions.
Source: Federal Reserve Bank of New York

(15) Money Market Investment Alternatives
Private Repo*

Treasury Bills Outstanding

$ Billions

2,100

March FOMC

1,800
1,500
1,200
900
600

100
0
11/01/15

05/01/15

09/01/15

01/01/16

*Includes total triparty repo activity ex. Fed RRP and excludes intrabank
trades.
Source: Desk Calculations, Federal Reserve Bank of New York, Treasury

2.00
1.75

ECB

1,000
800
600
400
200
0
-200
-400
Will
Not
Change

EUR-USD

USD-JPY

130

1.25

90

1.00

70

0.75

50

0.50

30

0.25

10

Source: Federal Reserve Bank of New York

TBD

(18) Three-Month Implied Swap Basis

110

01/01/15

Conversion
Ongoing

*RCPs refer to Fed RRP counterparties. Categories aggregate information
from public MMF complex announcements.
Source: AUM data from SEC Form N-MFP as of 3/31/16

1.50

07/01/14

Converted
to
Gov't

150

Maximum total outstanding
since 2008 = $586 billion

0.00
01/01/14

03/30/16

$ Billions

BPS

BoJ

02/09/16

(16) RCP Money Market Mutual Fund Conversions
from Prime to Government*

(17) Central Bank Liquidity Swaps Outstanding
$ Billions

12/21/15

Source: Federal Reserve Bank of New York

300

0
01/01/15

March FOMC

400

07/01/15

01/01/16

-10
01/01/12

Relative Cost of Borrowing
USD Via Swaps

01/01/13

Source: Bloomberg

01/01/14

01/01/15

01/01/16

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Exhibit 4

Class II FOMC – Restricted (FR)

(19) Quarterly Realized and Projected
Foreign Portfolio Income*
€ Millions

50

Euro (LHS)

Yen (RHS)

(20) Review of Foreign Reserves Portfolio
¥ Millions

•

and internal processes

1,100

40

880

30

660

20

440

10

220

o Based on feedback from Foreign Currency
Subcommittee and U.S. Treasury officials
o Size and currency composition taken as given
•

0

0

-10
03/01/10 09/01/11 03/01/13 09/01/14 03/01/16

The review addressed policy purpose, investment approach,

In current framework, funds are laddered across maturity
spectrum for eligible assets

•

-220

Staff proposes a new framework that:
o Assesses policymakers’ investment preferences
o Uses robust risk-return methodology

*Unfilled dots are projections; filled dots are realized.
Source: Federal Reserve Bank of New York

(21) New Investment Framework Components

(22) Foreign Portfolio Proposal

(1) Establish the policy purpose for foreign reserves portfolio:
tool to counter disorderly FX markets and influence value
of the dollar

Euro Portfolio

Yen Portfolio

Current

New*

Current

New*

Asset Allocation**

(2) Establish the investment objectives for foreign reserves
portfolio: liquidity, safety, return

Cash

7%

29%

44%

51%

(3) Determine funding needs: estimate $8 billion across both
SOMA and ESF

ST Instruments

86%

50%

56%

49%

LT Instruments

8%

21%

0%

0%

-23

+12

-2.8

-2.5

Nominal Amount (MM)

- €25

+ €13

- ¥264

- ¥234

Tail Risk (MM)***

€ 215

€ 431

¥5,562

¥5,540

(4) Establish constraints based on policymakers’ willingness
to bear risk: establish minimum cash allocation; set
eligible issuers, diversification, and liquidity constraints;
establish maximum expected shortfall

Projected 1-Yr. Return
Yield (bps)

(5) Formulate an asset allocation given these funding needs
*Target portfolio allocation after three months in the new framework. Euro
and investment risk preferences: benchmark allocation that benchmark allocation is based on interest rates as of March 11, 2016. Actual
allocation may differ. Yen portfolio allocation assumes the transfer of incoming
reflects policymakers’ risk tolerances
cash flows to the BoJ deposit account.
**ST Instruments are securities with 5 years or less in maturity and time
deposits; LT Instruments are securities with maturities between 5 and 10 years.
***Amount intervention capacity would be reduced if the portfolio realizes a
return in the bottom 1st percentile.
Source: Federal Reserve Bank of New York

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Appendix (Last)

Class II FOMC – Restricted (FR)

Appendix: Summary of Operational Testing
Summary of Operational Tests in prior period:
• Foreign Authorization
o April 12: Completed euro-denominated overnight repo for €1 million
o April 19: Partially completed liquidity swap with the European Central Bank for €51 thousand

o April 21: Completed liquidity swap with the Swiss National Bank for CHF51 thousand

Upcoming Operational Tests
• Three tests scheduled under the Domestic Authorization
o May 24: Outright Treasury sale for approximately $200-250 million
o May 25: Overnight repo for approximately $500-700 million
o May 25: Outright MBS Sale (specified pool) for no more than $100 million
o June 1: Outright MBS Sale (basket) for no more than $30 million
•

One test scheduled under the Foreign Authorization
o June 7: Liquidity swap with the Bank of Canada for approximately CAD51 thousand

April 26–27, 2016

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Appendix 3: Materials used by Mr. Wascher

235 of 261

April 26–27, 2016

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Class II FOMC – Restricted (FR)

Material for Briefing on

The U.S. Outlook

William Wascher
April 26, 2016

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Class II FOMC- Restricted (FR)

Forecast Summary
1. Evolution of 2016:Q1 GDP Growth
Nowcasts
Percent, annual rate

6

Judgmental (Tealbook-consistent)
Board staff factor model
System staff models

5

2. Evolution of 2016:Q2 GDP Growth
Forecasts
6

Percent, annual rate

6

Judgmental (Tealbook-consistent)
Board staff factor model
System staff models

6

5

5

4

4

3

3

3

3

2

2

2

2

1

1

1

1

0

0

0

0

-1

-1

-1

-1

-2

-2

4

-2

Mar.

Apr.

Note: The shaded region is a 70 percent confidence interval around
the Board staff factor model estimate.

4

-2

Apr.

Note: The shaded region is a 70 percent confidence interval around
the Board staff factor model estimate.

3. Real GDP

4. Unemployment Rate
Percent change, annual rate

10

Mar.

5

Percent

10

9

8

8

6

6

7

7

4

4

6

6

2

2

5

5

0

0

4

-2

-2

3

-4

2

Apr. TB
Mar. TB
70% confidence interval

8

-4

2014

2015

2016

2017

2018

Apr. TB
Mar. TB
70% confidence interval

9
8

4

Natural rate

3
2014

2015

2016

2017

2018

2

Note: Confidence intervals for panels 3,4,7, and 8 based on FRB/US
stochastic simulations.

6. Part-Time for Economic Reasons
by Group

5. Unemployment Rates by Group
20

Percent

Percent

20

10

16

8

12

6

6

8

8

4

4

4

4

2

2

0

0

16

Black or African-American
Hispanic or Latino
Aggregate
White

12

0

2000 2002 2004 2006 2008 2010 2012 2014 2016

Black or African-American
Hispanic or Latino
Total
White

2000 2002 2004 2006 2008 2010 2012 2014 2016

10
8

0

Note: Shaded bars indicate a period of business recession as defined
by the NBER. Data are not seasonally adjusted.

Note: Shaded bars indicate a period of business recession as defined
by the NBER.

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7. PCE Prices

8. PCE Prices Excluding Food and Energy
Percent change, annual rate

6

Apr. TB
Mar. TB
70% confidence interval

5
4

6

4
4
3

2

2

1

1

0

0

-1

-1

-2

-2
2014

2015

2016

Apr. TB
Mar. TB
70% confidence interval

5

3

-3

Percent change, annual rate

5

2017

2018

-3

Percentage points

3

2

2

1

1

0

0

-1

2014

2018

Source of Revision:
Resource utilization
Energy price passthrough
Import prices
Underlying inflation
Other

Percent
Michigan, next five to ten years
Twelve-month moving average
SPF for PCE, next ten years

3.5

-0.3

-0.5

-0.5

-0.7

2015

4.0

2.5
2.0

2008

2010

2012

2014

2016

0.3

-0.3

Q1
1.5

0.5

-0.1

Apr. (p)
2.0

0.7

Revisions to Projection

-0.1

3.0

2.5

-1

0.1

3.5

3.0

2018

0.1

11. Longer-Term Inflation Expectations
4.0

2017

Percentage points

0.5

2017

2016

0.7

Revisions to Projection

2016

2015

10. Inflation Revisions Since December:
Core PCE

0.3

2015

4

3

9. Inflation Revisions Since December:
Total PCE
Source of Revision:
Food
Energy
Core

5

1.5

Note: Median responses. Shaded area denotes 70 percent of the
historical range since 1998. (p) Preliminary value.

2 of 3

2016

2017

2018

-0.7

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Key Economic Indicators for the April, June, and July FOMC Meetings
(Percent change at annual rate, except as noted)

2015
Dec.

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 2016 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
Jan.
Feb.
Mar.
Apr.
May
June

Total PCE price index
3‐month change
March Tealbook

0.5
0.6

0.6
0.7

‐0.3
‐0.4

0.2
0.1

0.9
0.4

1.5
1.6

1.6
2.0

12‐month change
March Tealbook

0.7
0.7

1.2
1.3

1.0
0.9

0.8
0.8

1.0
0.9

0.7
0.8

0.6
0.7

3‐month change
March Tealbook

1.1
1.2

1.9
2.0

1.9
1.9

1.9
2.0

1.5
1.5

1.3
1.5

1.6
1.6

12‐month change
March Tealbook

1.4
1.5

1.7
1.7

1.7
1.7

1.5
1.6

1.5
1.5

1.5
1.6

1.5
1.5

Unemployment rate (percent)
March Tealbook

5.0
5.0

4.9
4.9

4.9
4.9

5.0
4.9

4.9
4.9

4.9
4.9

4.9
4.9

Payroll employment (change in 000s)
March Tealbook

271
271

168
172

245
242

215
216

202
202

202
202

202
202

Core PCE price index

3rd Q3 est.
2.0
2.0

Gross Domestic Product
March Tealbook

2nd Q4 est. 3rd Q4 est.
1.0
1.4
1.2
1.2

2nd Q1 est. 3rd Q1 est.
0.4
0.4
1.9
1.9

Key : Estimate first available at:
April meeting

June meeting

Note: The June CPI will be released prior to the July FOMC meeting.

3 of 3

July meeting

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Appendix 4: Materials used by Mr. Kamin

240 of 261

April 26–27, 2016

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Class II FOMC – Restricted (FR)

Material for

The International Outlook

Steven B. Kamin
April 26, 2016

241 of 261

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242 of 261

Exhibit 1

Class II FOMC - Restricted (FR)

The International Outlook
1. Frequency of Appearance of International
Frequency
Language in FOMC Minutes
‘‘dollar’’
‘‘China’’ or ‘‘Chinese’’
‘‘global’’

2. Checklist for Abatement of Global Headwinds
25
Yes No Maybe
20

1. Recent pickup in foreign
GDP growth?

15

2. Greater confidence in
forecast, absent new
shocks?

10

3. Sustained improvement in
investor sentiment?
5

0
Jun Sep
2014

Dec

Mar

Jun
2015

Sep

Dec

Mar
2016

3. Foreign GDP

4. Brent Oil Price Outlook
Percent change, annual rate

Mar. TB

4. Subsiding of fundamental
risks?

USD per barrel

5

95

Mar. TB

Emerging market
economies (EME)

85
4
75
3

65

Total

55

2

45
Advanced foreign
economies (AFE)

1
35
0

2014

2015

2016

2017

25

2018

2015

2016

Note: Historical data are weekly; forecasts are monthly.

5. Foreign Recession Probability Model

6. Probability of Foreign Recession
1.0

Monthly probit model, including:
0.8

- Index of foreign macro indicators: IP,
retail sales, new export orders, and
GDP*
- Index of financial stress: excess bond
premium**

0.6

0.4

Unconditional Probability

Recession abroad defined as countries
comprising 55 percent of foreign GDP
in recession.

0.2
Mar.
0.0

* Aruoba, Diebold, Scotti Index (JBES, 2009).
** Gilchrist and Zakrajsek Index (AER, 2012).

2006

2008

2010

2012

2014

2016

Note: Shading indicates that countries representing 55% of foreign GDP are
classified as in recession. Source: Staff calculations.

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Exhibit 2

Class II FOMC - Restricted (FR)

The International Outlook (2)
7. Financial Stress and Interest Rate Expectations
0.6

Index units

Percent

8. Real Dollar Indexes
2013:Q1 = 100

3.0

Weekly
0.5

Foreign Financial
Stress Index*

130

2.5

AFE
125

0.4

2.0

Expected 24-month Ahead
Fed Funds Rate**

0.3

135

Mar. TB

120
Broad

1.5

115

0.2
1.0

0.1

110
EME
105

0.5

0.0
-0.1
2013

2014

2015

0.0
2016

* Index normalized to equal 0 during 2007, 1 after Lehman collapse.
** Based on OIS swaps.

9. Chinese Exchange Rates
104

Dollar
appreciation

July 15, 2015 = 100

102

RMB/USD (inverted scale)

Multilateral
Index*

6.00

RMB
Appreciation

6.13

100

6.26

98
96

6.39

RMB/USD

6.52

94
92
2015

6.65
2016

2017

* China Foreign Exchange Trade System (nominal exchange rate basket)
Source: CFETS, FRB, and staff calculations.

Page 2 of 2

100
95
2013

2014

2015

2016

2017

2018

Note: Historical data is monthly; forecasted values are quarterly.

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Appendix 5: Materials used by Ms. Liang

244 of 261

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Class II FOMC – Restricted (FR)

Material for Briefing on

Financial Stability Developments

Nellie Liang
April 26, 2016

245 of 261

April 26–27, 2016

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246 of 261

Exhibit 1

April 26, 2016

Asset Valuations and Nonfinancial Credit
Forward Price-to-Earnings Ratio of S&P 500 Firms

High-Yield Bond Spreads

Ratio

Percent
16

27

Monthly

Monthly
24

14

10-year
Far-term forward

12

21

Apr.

+ 22

10
18
8
15
6

Historical Median

+ Apr.
+ 22

12
9

4
2

6

0

1988 1992 1996 2000 2004 2008 2012 2016

1998

2001

2004

2007

2010

2013

2016

Note: Aggregate forward price-to-earnings ratio of S&P 500 firms. Based
on expected earnings for twelve months ahead. + denotes the latest daily
observation.
Source: Thompson Reuters Financial.

Note: Credit spreads are estimated from curve fit to Merrill Lynch bond
yields. Far-term forward spreads are computed between years nine and ten.
+ denotes latest daily observation.
Source: Staff estimates.

Commercial Real Estate Capitalization Rates
by Property Type

Percentiles

Aggregate Risk Appetite and Components
Percent

Count

11

3-month moving average

Quarterly
Office
Retail
Industrial
Multifamily

10

100

9

80

8

60

7

40

6

20

5

0

Risk appetite (LHS)
>= 0.5 std. dev. above mean

4

3

2

Mar.

Q1e
1

0

2002 2004 2006 2008 2010 2012 2014 2016

1980

Source: Real Capital Analytics.

1986

1992

1998

2004

2010

2016

Source: Staff estimates.

Private Nonfinancial Business Sector
Credit-to-GDP ratio

Private Nonfinancial Sector Credit-to-GDP Ratio Gaps
Log ratio

Percentage point difference from trend
60

Quarterly

Quarterly
50

Actual ratio
Final estimate of trend ratio
Q4

16

Household
Corporate business

12

40

8

30

4

20

0

10

-4
Q4

0
-10

-12

-20

1979

1985

1991

1997

2003

2009

Note: Calculated using an HP filter with lambda=400,000.
Source: FOF, NIPA, and staff calculations.

2015

-8

-16

1980

1985

1990

1995

2000

2005

2010

Note: Calculated using an HP filter with lambda=400,000.
Source: FOFA, NIPA, and staff calculations.

2015

April 26–27, 2016

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Class II FOMC – Restricted (FR)

247 of 261

Exhibit 2

April 26, 2016

Financial Sector Vulnerabilities
Stock Price and CDS Spreads, LISCC Firms
Dec. 31, 2015 = 100

Price-to-Book Ratios for LISCC Firms

Basis points

Ratio
200

130

2.0

Daily
120

175

Dec. 2014
Dec. 2015
Apr. 2016*

Stock price
110

150

100

125

90

100

1.5

1.0
Apr.
22

CDS spread

80
70

75

0.5

50

60

25

Feb.

Apr. June Aug.
2015

Oct.

0.0
BAC

Dec. Feb. Apr.
2016

C

GS

JPM

MS

WFC

STT

BK

*As of April 21, 2016.
Source: SNL Financial.

Source: Bloomberg, Yahoo Finance, Google Finance, SNL Financial, and
FR Y-9C.

Recent Steps
Credit Market Debt Outstanding

Percent of nominal GDP
300

Quarterly
Other
MMMFs
Mutual Funds
ABS issuers
Finance companies
GSEs
Pension funds and insurers
Broker-dealers
Banks

250

•

ABS - Risk-retention and
enhanced disclosure and
reporting

•

MF leverage - Data and
disclosure, risk management,
limits

•

MF liquidity and redemption Strengthen risk management,
clarify less-liquid asset limits,
reduce first-mover

200
150
100
Q4

50
0

1975

1979

1983

1987

1991

1995

1999

2003

2007

2011

2015

Source: Federal Reserve Financial Accounts of the United States.

Trading Volume for High-Yield Bonds
Billions of dollars

Bid-Ask Spread for High-Yield Bonds
Billions of dollars

15

Percent
4

5-day moving average

5

5-day moving average

Non-oil (left scale)
Oil (right scale)

3

Non-oil
Oil

4

10
3
2

Apr.
20

Apr.
20

5

1

0

1

0

2014

2015

2016

Note: Only trades of bonds that have been issued for 60 days or more at
the time of trading are included. Excluding 144a bonds.
Source: FINRA, Mergent, Moody’s DRD.

2

0

2014

2015

2016

Note: All measures are computed for non-defaulted bonds on the
secondary market that have traded at least 10 times between 10:30am and
3:30pm. Excluding 144a bonds. Bid-ask spread is the difference between
weighted average dealer bid prices and ask prices scaled by the mid price.
Source: FINRA, Mergent, Moody’s DRD.

April 26–27, 2016

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Appendix 6: Materials used by Mr. Laubach

248 of 261

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Material for the Briefing on

Monetary Policy Alternatives

Thomas Laubach
April 26–27, 2016

249 of 261

April 26–27, 2016

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250 of 261

Class I FOMC – Restricted Controlled (FR)

Exhibit 1: Monetary Policy Alternatives
Changes in Sovereign Bond Yields over the
Intermeeting Period
Percentage Points
U.S
Japan
Germany

2−Year

5−Year

10−year Corporate Bond Spreads
0.06
0.04
0.02
0.00
−0.02
−0.04
−0.06
−0.08
−0.10
−0.12
−0.14
−0.16
−0.18
−0.20

750

Near−term Uncertainties

340

Mar. 320
FOMC
300

High−yield (left scale)
BBB (right scale)

700
650

280

600

260

550

240
500

220

450

200

400

180

350

160

300

2012

10−Year

Note: Bars represent change in bonds yields over the intermeeting period.
Source: Bloomberg.

Basis points

2013

2014

140

2015

Note: Spreads over 10−year Treasury yield; daily.
Source: Staff estimates of smoothed corporate yield curves based on
Merrill Lynch data and smoothed Treasury yield curve.

Medium−term Uncertainties

How persistent will the
productivity growth slowdown be?

Will spending indicators pick up?
Will labor market continue to improve?

Will inflation pick up, and against
which backdrop?

Will financial conditions deteriorate
again, possibly because of Brexit
concerns?

How much policy space remains for
central banks in advanced
economies?

Neutral Real Federal Funds Rate Projections

Policy Responses to Alternative Outcomes

Percent

2.0

End−2016
Longer−run

2016 Unemployment Rate (Q4)

1.5
−50 bps

2016
Core PCE
inflation
(Q4/Q4)

−50 bps
Current
Median
1.6%

0.38%

Current
Median
4.7%

+50 bps

0.38%

0.13%

1.0

0.5
0.88%

0.88%

0.38%
0.0

+50 bps

1.13%

0.88%

0.63%

Note: Shaded region represents the current baseline assumptions.
Source: FRBNY Primary Dealer and Market Participants surveys.

Jul. 2015

Oct. 2015

Jan. 2016

Apr. 2016

Note: The January surveys did not ask for end−2016 real fed funds
rate projections. Data symbols show medians. The whisker bars show
the range from the 75th percentile to the 25th percentile.
Source: FRBNY Primary Dealer and Market Participants surveys.

Page 1 of 12

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Class I FOMC – Restricted Controlled (FR)

MARCH 2016 FOMC STATEMENT
1. Information received since the Federal Open Market Committee met in January
suggests that economic activity has been expanding at a moderate pace despite the
global economic and financial developments of recent months. Household spending
has been increasing at a moderate rate, and the housing sector has improved further;
however, business fixed investment and net exports have been soft. A range of recent
indicators, including strong job gains, points to additional strengthening of the labor
market. Inflation picked up in recent months; however, it continued to run below the
Committee’s 2 percent longer-run objective, partly reflecting declines in energy
prices and in prices of non-energy imports. Market-based measures of inflation
compensation remain low; survey-based measures of longer-term inflation
expectations are little changed, on balance, in recent months.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The Committee currently expects that, with gradual
adjustments in the stance of monetary policy, economic activity will expand at a
moderate pace and labor market indicators will continue to strengthen. However,
global economic and financial developments continue to pose risks. Inflation is
expected to remain low in the near term, in part because of earlier declines in energy
prices, but to rise to 2 percent over the medium term as the transitory effects of
declines in energy and import prices dissipate and the labor market strengthens
further. The Committee continues to monitor inflation developments closely.
3. Against this backdrop, the Committee decided to maintain the target range for the
federal funds rate at ¼ to ½ percent. The stance of monetary policy remains
accommodative, thereby supporting further improvement in labor market conditions
and a return to 2 percent inflation.
4. In determining the timing and size of future adjustments to the target range for the
federal funds rate, the Committee will assess realized and expected economic
conditions relative to its objectives of maximum employment and 2 percent inflation.
This assessment will take into account a wide range of information, including
measures of labor market conditions, indicators of inflation pressures and inflation
expectations, and readings on financial and international developments. In light of
the current shortfall of inflation from 2 percent, the Committee will carefully monitor
actual and expected progress toward its inflation goal. The Committee expects that
economic conditions will evolve in a manner that will warrant only gradual increases
in the federal funds rate; the federal funds rate is likely to remain, for some time,
below levels that are expected to prevail in the longer run. However, the actual path
of the federal funds rate will depend on the economic outlook as informed by
incoming data.
5. The Committee is maintaining its existing policy of reinvesting principal payments
from its holdings of agency debt and agency mortgage-backed securities in agency
mortgage-backed securities and of rolling over maturing Treasury securities at

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auction, and it anticipates doing so until normalization of the level of the federal
funds rate is well under way. This policy, by keeping the Committee’s holdings of
longer-term securities at sizable levels, should help maintain accommodative
financial conditions.

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Class I FOMC – Restricted Controlled (FR)

APRIL 2016 ALTERNATIVE A
1. Information received since the Federal Open Market Committee met in January
March suggests indicates that labor market conditions have improved further
even as growth in economic activity has been expanding at a moderate pace despite
the global economic and financial developments of recent months slowed. Growth
in household spending has been increasing at a moderate rate, and declined. Since
the beginning of the year, the housing sector has improved further; however, but
business fixed investment and net exports have been soft. A range of recent
indicators, including strong job gains, points to additional strengthening of the labor
market. Inflation picked up in recent months; however, it has continued to run below
the Committee’s 2 percent longer-run objective, only partly reflecting earlier
declines in energy prices and in falling prices of non-energy imports. Market-based
measures of inflation compensation remain low; survey-based measures of longerterm inflation expectations are little changed, on balance, in recent months.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The Committee currently expects that, with gradual
adjustments in the stance of appropriately accommodative monetary policy, growth
in economic activity will expand at pick up to a moderate pace and labor market
indicators will continue to strengthen. However, global economic and financial
developments continue to pose risks. Inflation is expected to remain low in the near
term, in part because of earlier declines in energy prices, but to rise to 2 percent over
the medium term as the transitory effects of declines in energy and import prices
dissipate and the labor market strengthens further. The Committee continues to sees
downside risks to the economic outlook and is closely monitoring inflation,
developments indicators of longer-term inflation expectations, and global
economic and financial developments closely.
3. Against this backdrop, the Committee decided to maintain the target range for the
federal funds rate at ¼ to ½ percent. The stance of monetary policy remains
accommodative, thereby supporting further improvement in labor market conditions
and a return to 2 percent inflation. The Committee judges that an increase in the
target range will not be warranted until inflation moves closer to 2 percent on a
sustained basis and the risks to the economic outlook are more closely balanced.
4. In determining the When adjustments to the target range become appropriate,
their timing and size of future adjustments to the target range for the federal funds
rate, the Committee will assess will depend on the Committee’s assessment of
realized and expected economic conditions relative to its objectives of maximum
employment and 2 percent inflation. This assessment will take into account a wide
range of information, including measures of labor market conditions, indicators of
inflation pressures and inflation expectations, and readings on financial and
international developments. In light of the current shortfall of inflation from 2
percent, the Committee will carefully monitor actual and expected progress toward its
inflation goal. The Committee expects that economic conditions will evolve in a

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manner that will, for some time, warrant only gradual increases in maintaining the
federal funds rate; the federal funds rate is likely to remain, for some time, below at
levels below those that are expected to prevail in the longer run. However, the actual
path of the federal funds rate will depend on the economic outlook as informed by
incoming data.
5. The Committee is maintaining its existing policy of reinvesting principal payments
from its holdings of agency debt and agency mortgage-backed securities in agency
mortgage-backed securities and of rolling over maturing Treasury securities at
auction, and it anticipates doing so until normalization of the level of the federal
funds rate is well under way. This policy, by keeping the Committee’s holdings of
longer-term securities at sizable levels, should help maintain accommodative
financial conditions.

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APRIL 2016 ALTERNATIVE B
1. Information received since the Federal Open Market Committee met in January
March suggests indicates that labor market conditions have improved further
even as growth in economic activity has been expanding at a moderate pace despite
the global economic and financial developments of recent months appears to have
slowed. Growth in household spending has been increasing at a moderate rate
moderated, and although households’ real income has risen at a solid rate and
consumer sentiment remains high. Since the beginning of the year, the housing
sector has improved further; however, but business fixed investment and net exports
have been soft. A range of recent indicators, including strong job gains, points to
additional strengthening of the labor market. Inflation picked up in recent months;
however, it has continued to run below the Committee’s 2 percent longer-run
objective, partly reflecting earlier declines in energy prices and in falling prices of
non-energy imports. Market-based measures of inflation compensation remain low;
survey-based measures of longer-term inflation expectations are little changed, on
balance, in recent months.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The Committee currently expects that, with gradual
adjustments in the stance of monetary policy, economic activity will expand at a
moderate pace and labor market indicators will continue to strengthen. However,
global economic and financial developments continue to pose risks. Inflation is
expected to remain low in the near term, in part because of earlier declines in energy
prices, but to rise to 2 percent over the medium term as the transitory effects of
declines in energy and import prices dissipate and the labor market strengthens
further. The Committee continues to closely monitor inflation indicators and global
economic and financial developments closely.
3. Against this backdrop, the Committee decided to maintain the target range for the
federal funds rate at ¼ to ½ percent. The stance of monetary policy remains
accommodative, thereby supporting further improvement in labor market conditions
and a return to 2 percent inflation.
4. In determining the timing and size of future adjustments to the target range for the
federal funds rate, the Committee will assess realized and expected economic
conditions relative to its objectives of maximum employment and 2 percent inflation.
This assessment will take into account a wide range of information, including
measures of labor market conditions, indicators of inflation pressures and inflation
expectations, and readings on financial and international developments. In light of
the current shortfall of inflation from 2 percent, the Committee will carefully monitor
actual and expected progress toward its inflation goal. The Committee expects that
economic conditions will evolve in a manner that will warrant only gradual increases
in the federal funds rate; the federal funds rate is likely to remain, for some time,
below levels that are expected to prevail in the longer run. However, the actual path

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of the federal funds rate will depend on the economic outlook as informed by
incoming data.
5. The Committee is maintaining its existing policy of reinvesting principal payments
from its holdings of agency debt and agency mortgage-backed securities in agency
mortgage-backed securities and of rolling over maturing Treasury securities at
auction, and it anticipates doing so until normalization of the level of the federal
funds rate is well under way. This policy, by keeping the Committee’s holdings of
longer-term securities at sizable levels, should help maintain accommodative
financial conditions.

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APRIL 2016 ALTERNATIVE C
1. Information received since the Federal Open Market Committee met in January
March suggests indicates that labor market conditions have improved further
even as growth in economic activity has been expanding at a moderate pace despite
the global economic and financial developments of recent months appears to have
slowed. Household spending has been increasing at a moderate rate, and the housing
sector has improved further; however, business fixed investment and net exports have
been soft. A range of recent indicators, including strong job gains, points to
additional strengthening of the labor market. Inflation picked up in recent months
has stepped up since last year; however, though it has continued to run below the
Committee’s 2 percent longer-run objective, partly reflecting largely because of
earlier declines in energy prices and in falling prices of non-energy imports. Marketbased measures of inflation compensation remain low; survey-based measures of
longer-term inflation expectations are little changed, on balance, in recent months.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The Committee currently expects that, with gradual
adjustments in the stance of monetary policy, economic activity will expand at a
moderate pace and labor market indicators will continue to strengthen. However,
global economic and financial developments continue to pose risks. The Committee
sees the risks to the outlook for both economic activity and the labor market as
nearly balanced but is monitoring global economic and financial developments.
Inflation is expected to remain low in the near term, in part because of earlier declines
in energy prices, but to rise to 2 percent over the medium term as the transitory
effects of declines in energy and import prices dissipate and the labor market
strengthens further. The Committee continues to monitor inflation developments
closely.
3. Against this backdrop, the Committee decided to maintain increase the target range
for the federal funds rate at ¼ to ½ to ¾ percent. The stance of monetary policy
remains accommodative, thereby supporting further improvement in labor market
conditions and a return to 2 percent inflation.
4. In determining the timing and size of future adjustments to the target range for the
federal funds rate, the Committee will assess realized and expected economic
conditions relative to its objectives of maximum employment and 2 percent inflation.
This assessment will take into account a wide range of information, including
measures of labor market conditions, indicators of inflation pressures and inflation
expectations, and readings on financial and international developments. In light of
the current shortfall of inflation from 2 percent, the Committee will carefully monitor
actual and expected progress toward its inflation goal. The Committee expects that
economic conditions will evolve in a manner that will warrant only gradual increases
in the federal funds rate; the federal funds rate is likely to remain, for some time,
below levels that are expected to prevail in the longer run. However, the actual path

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of the federal funds rate will depend on the economic outlook as informed by
incoming data.
5. The Committee is maintaining its existing policy of reinvesting principal payments
from its holdings of agency debt and agency mortgage-backed securities in agency
mortgage-backed securities and of rolling over maturing Treasury securities at
auction, and it anticipates doing so until normalization of the level of the federal
funds rate is well under way. This policy, by keeping the Committee’s holdings of
longer-term securities at sizable levels, should help maintain accommodative
financial conditions.

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Implementation Note for April 2016 Alternative A and Alternative B
Release Date: March 16 April 27, 2016
Decisions Regarding Monetary Policy Implementation
The Federal Reserve has made the following decisions to implement the monetary policy
stance announced by the Federal Open Market Committee in its statement on March 16
April 27, 2016:
•

The Board of Governors of the Federal Reserve System left unchanged the
interest rate paid on required and excess reserve balances at 0.50 percent.

•

As part of its policy decision, the Federal Open Market Committee voted to
authorize and direct the Open Market Desk at the Federal Reserve Bank of New
York, until instructed otherwise, to execute transactions in the System Open
Market Account in accordance with the following domestic policy directive:
“Effective March 17 April 28, 2016, the Federal Open Market Committee
directs the Desk to undertake open market operations as necessary to
maintain the federal funds rate in a target range of ¼ to ½ percent,
including overnight reverse repurchase operations (and reverse repurchase
operations with maturities of more than one day when necessary to
accommodate weekend, holiday, or similar trading conventions) at an
offering rate of 0.25 percent, in amounts limited only by the value of
Treasury securities held outright in the System Open Market Account that
are available for such operations and by a per-counterparty limit of $30
billion per day.
The Committee directs the Desk to continue rolling over maturing
Treasury securities at auction and to continue reinvesting principal
payments on all agency debt and agency mortgage-backed securities in
agency mortgage-backed securities. The Committee also directs the Desk
to engage in dollar roll and coupon swap transactions as necessary to
facilitate settlement of the Federal Reserve’s agency mortgage-backed
securities transactions.”
More information regarding open market operations may be found on the Federal
Reserve Bank of New York’s website.

•

The Board of Governors of the Federal Reserve System took no action to change
the discount rate (the primary credit rate), which remains at 1.00 percent.

This information will be updated as appropriate to reflect decisions of the Federal Open
Market Committee or the Board of Governors regarding details of the Federal Reserve’s
operational tools and approach used to implement monetary policy.

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Implementation Note for April 2016 Alternative C
Release Date: March 16 April 27, 2016
Decisions Regarding Monetary Policy Implementation
The Federal Reserve has made the following decisions to implement the monetary policy
stance announced by the Federal Open Market Committee in its statement on March 16
April 27, 2016:
•

The Board of Governors of the Federal Reserve System left unchanged the
interest rate paid on required and excess reserve balances at 0.50 percent voted
[ unanimously ] to raise the interest rate paid on required and excess reserve
balances to 0.75 percent, effective April 28, 2016.

•

As part of its policy decision, the Federal Open Market Committee voted to
authorize and direct the Open Market Desk at the Federal Reserve Bank of New
York, until instructed otherwise, to execute transactions in the System Open
Market Account in accordance with the following domestic policy directive:
“Effective March 17 April 28, 2016, the Federal Open Market Committee
directs the Desk to undertake open market operations as necessary to
maintain the federal funds rate in a target range of ¼ to ½ to ¾ percent,
including overnight reverse repurchase operations (and reverse repurchase
operations with maturities of more than one day when necessary to
accommodate weekend, holiday, or similar trading conventions) at an
offering rate of 0.25 0.50 percent, in amounts limited only by the value of
Treasury securities held outright in the System Open Market Account that
are available for such operations and by a per-counterparty limit of $30
billion per day.
The Committee directs the Desk to continue rolling over maturing
Treasury securities at auction and to continue reinvesting principal
payments on all agency debt and agency mortgage-backed securities in
agency mortgage-backed securities. The Committee also directs the Desk
to engage in dollar roll and coupon swap transactions as necessary to
facilitate settlement of the Federal Reserve’s agency mortgage-backed
securities transactions.”
More information regarding open market operations may be found on the Federal
Reserve Bank of New York’s website.

•

In a related action, the Board of Governors of the Federal Reserve System took
no action to change the discount rate (the primary credit rate), which remains at
1.00 voted [ unanimously ] to approve a ¼ percentage point increase in the
discount rate (the primary credit rate) to 1.25 percent, effective April 28,
2016. In taking this action, the Board approved requests submitted by the
Boards of Directors of the Federal Reserve Banks of … .

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This information will be updated as appropriate to reflect decisions of the Federal Open
Market Committee or the Board of Governors regarding details of the Federal Reserve’s
operational tools and approach used to implement monetary policy.

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