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Accessible Version
Meeting of the Federal Open Market Committee
December 13, 2011 Presentation Materials
Presentation Materials (PDF)
Pages 172 to 198 of the Transcript
Appendix 1: Materials used by Mr. Sack
Material for
FOMC Presentation: Financial Market Developments and Desk Operations
Brian Sack
December 13, 2011
Exhibit 1
Topleft panel
(1)
Title: Euro Area Sovereign Debt Spreads
Series: Spanish, Italian, and French 10year spreads to Germany
Horizon: January 1, 2011 December 9, 2011
Description: Spanish, Italian, and French debt spreads exhibited notable volatility on European news throughout
the intermeeting period, and remain elevated.
Source: Bloomberg
Topright panel
(2)
Title: Euro Liquidity Provided by ECB Operations
Series: Allocation of ECB operations to French and Italian banks, and to all other banks
Horizon: January 1, 2011 November 1, 2011
Description: Euro liquidity provided by ECB operations has increased in recent months, with the majority of those
increases being taken up by French and Italian banks.
Source: ECB
Middleleft panel
(3)
Title: Dollar Funding Spreads to OIS (3Month Rates)
Series: Euro Libor rate swapped to dollars spread to OIS, central bank liquidity swap line rate spread to OIS
Horizon: April 1, 2010 December 9, 2011
Description: An FX swapimplied measure of funding stress remains elevated, but it exhibited a sharp drop after
the liquidity swap line rate was decreased.
Source: Bloomberg, Federal Reserve Bank of New York
Middleright panel
(4)
Title: Dollar Funding Spreads to OIS (3Month Rates)
Series: 3month forward Libor spread to OIS, spot Libor spread to OIS
Horizon: April 1, 2010 December 9, 2011
Description: The spot dollar Libor rate has continued its slow rise; meanwhile, 3month forward Libor remains
somewhat elevated but exhibited a sharp drop after the liquidity swap line rate decrease.
Source: Bloomberg
Bottomleft panel
(5)
Title: Financial CDS Spreads
Series: Average 5year credit default swap spreads of major European financials, major U.S. financials
Horizon: April 1, 2010 December 9, 2011
Description: Despite a sharp tightening of CDS spreads late in the intermeeting period, they remain elevated for
both European and domestic banks and were higher overall over the intermeeting period.
Source: Bloomberg
Bottomright panel
(6)
Title: Dollar Exchange Rates
Series: Dollareuro exchange rate, Federal Reserve Board of Governors' tradeweighted dollar measure
Horizon: April 1, 2010 December 9, 2011
Description: The dollar appreciated against major currencies in the intermeeting period, exhibiting signs of safe
haven status.
Source: Bloomberg, Federal Reserve Board of Governors
Exhibit 2
Topleft panel
(7)
Title: Equity Prices
Series: S&P 500 and Euro Stoxx Index, indexed to 4/1/2010
Horizon: April 1, 2010 December 9, 2011
Description: Domestic and European equities were roughly flat on the intermeeting period amid notable volatility.
Source: Bloomberg
Topright panel
(8)
Title: Economic News Index*
Series: Citigroup Economic News Index
Horizon: April 1, 2010 December 9, 2011
Description: Domestic economic news consistently beat expectation in the intermeeting period, resulting in a high
index reading.
* Positive readings correspond to stronger than expected economic releases. Return to text
Source: Citigroup
Middleleft panel
(9)
Title: Effects of European Stress on 2012 U.S. GDP Growth
Series: Hypothetical change in 2012 GDP forecast if there were a fully convincing resolution to European
situation, as detailed in primary dealer responses to Federal Reserve Bank of New York Survey
Horizon: 2012
Description: There is a wide distribution of dealers' estimates of the effects of European stresses on U.S. growth,
but a significant percentage of dealers believe that there could be fairly large effects.
Source: Federal Reserve Bank of New York Survey
Middleright panel
(10)
Title: Treasury Yields
Series: 2year, 5year, and 10year Treasury yields
Horizon: April 1, 2010 December 9, 2011
Description: Treasury yields were relatively unchanged in the intermeeting period.
Source: Bloomberg
Bottomleft panel
(11)
Title: Probability Distribution of First Increase in Federal Funds Target Rate
Series: Average probabilities of first increase in federal funds target rate across different quarters, as assessed in
November and December Federal Reserve Bank of New York Surveys of primary dealers
Horizon: 2011:Q4 to 2014:Q2 and later
Description: Dealers pushed out their estimates for the first increase in the federal funds rate farther into the
future.
Source: Federal Reserve Bank of New York Survey
Bottomright panel
(12)
Title: Probability of Additional Policy Actions
Series: Federal Reserve Bank of New York Survey additional policy action responses by primary dealers
Horizon: Current meeting and 1 year
Description: Most respondents did not place a high probability on any sort of easing in the current meeting.
There was, however, relatively high expectation for further easing within the next year, particularly with respect to
the possibility of further security purchases or a change in rate guidance.
Policy actions shown in the chart are "Increase SOMA Duration," "Reduce IOER," "Provide SOMA Guidance," "Increase SOMA Size," and
"Change Rate Guidance."
Source: Federal Reserve Bank of New York Survey
Exhibit 3
Topleft panel
(13)
Title: SOMA Portfolio Holdings
Series: Agency MBS, agency debt, and Treasury securities held by the SOMA portfolio
Horizon: August 1, 2008 November 30, 2011
Description: Given the implementation of the Maturity Extension program and the reinvestments into agency
MBS, the Treasury portion of the portfolio has recently remained flat while the agency MBS portion of the
portfolio has increased slightly. The agency debt holdings do not constitute a large part of the portfolio, and have
decreased slightly in recent months.
Source: Federal Reserve Bank of New York
Topright panel
(14)
Title: Transaction Prices for Purchasing MBS (FNMA 4.0 Coupon)
Series: Daily weighted average market price of FNMA 4.0 coupon*, onestandarddeviation market range of
market prices, and FRBNY daily weighted average purchase prices
Horizon: October 3, 2011 December 9, 2011
Description: The prices on FRBNY purchases of MBS have been within normal market ranges.
* Daily weighted average of prices reported through TRACE. Return to text
Source: FINRA, Federal Reserve Bank of New York
Middleleft panel
(15)
Title: Balances in Primary Dealer Margin Accounts at FRBNY (12/9/11)
Series: Balances in primary dealer MBS margin accounts at FRBNY through 12/9/2011
Horizon: December 9, 2011
Description: Primary dealers' margin at FRBNY under the margining regime for MBS purchases ranges from
under $5 million to over $300 million across the 15 participating dealers.
Source: Federal Reserve Bank of New York
Middleright panel
(16) Operations for Maturity Extension Program (Through 12/9/11)
Purchases
Sales
107.5
100.1
BidtoCover (Median)
3.3
7.8
Duration (Years)
10.2
1.6
10Year Equivalents ($ Bil.)
120.3
16.4
Par Amount ($ Bil.)
Source: Federal Reserve Bank of New York
Bottomleft panel
(17)
Title: Volatility of Euro Area Sovereign Debt Prices
Series: Standard deviations of daily price changes of 710 year indices of sovereign debt across euro area
countries
Horizon: 20052007, 20082011:H1, 2011:H2 to date
Description: There have been increases in the volatility of euro area sovereign debt prices in recent months, with
particularly pronounced increases for Italian and Spanish debt.
Source: Bloomberg, Federal Reserve Bank of New York
Bottomright panel
(18)
Title: Euro RRP Collateral Composition
Series: Collateral taken under FRBNY euro reverse repurchase operations in previous regime and current six
basket regime*, across different types of eligible sovereign debt
Horizon: March 1, 2011 June 17, 2011 and October 28, 2011 December 9, 2011
Description: Since beginning to differentiate between the different types of sovereign debt in pricing euro reverse
repurchase agreements, FRBNY has received well more German debt and less peripheral debt.
* Previous regime is average over sample period 3/1/11 6/17/11. Current regime began on 10/28/11 and differentiates between six
different collateral types. Intervening transitional regime not shown. Return to text
Source: Federal Reserve Bank of New York
Appendix 2: Materials used by Mr. Wilcox
Material for Forecast Summary
David Wilcox
December 13, 2011
Forecast Summary
Confidence Intervals Based on Tealbook Track Record
Topleft panel
Real GDP
Fourquarter percent change
Period
December Tealbook
October Tealbook
2010:Q1
2.17
ND
2010:Q2
3.30
ND
2010:Q3
3.51
ND
2010:Q4
3.14
ND
2011:Q1
2.24
ND
2011:Q2
1.63
1.63
2011:Q3
1.49
1.68
2011:Q4
1.70
1.72
2012:Q1
2.13
2.22
2012:Q2
2.26
2.50
2012:Q3
2.41
2.48
2012:Q4
2.33
2.52
2013:Q1
2.36
2.67
2013:Q2
2.46
2.84
2013:Q3
2.45
3.03
2013:Q4
2.46
3.24
December Tealbook
October Tealbook
2010:Q1
1.86
ND
2010:Q2
0.33
ND
2010:Q3
0.98
ND
2010:Q4
1.95
ND
Topright panel
PCE Prices
Percent change, annual rate
Period
Period
December Tealbook
October Tealbook
2011:Q1
3.90
ND
2011:Q2
3.30
3.30
2011:Q3
2.31
2.33
2011:Q4
0.66
1.20
2012:Q1
1.41
1.43
2012:Q2
1.47
1.38
2012:Q3
1.33
1.35
2012:Q4
1.27
1.34
2013:Q1
1.26
1.39
2013:Q2
1.22
1.36
2013:Q3
1.22
1.37
2013:Q4
1.23
1.39
Forecast
The 70% confidence interval begins at about 3.3 in 2011:Q2, follows the contour of the December Tealbook curve, and ends at about
[0.0,2.4].
Middleleft panel
Unemployment Rate
Percent
Period
December Tealbook
October Tealbook
2010:Q1
9.70
ND
2010:Q2
9.60
ND
2010:Q3
9.60
ND
2010:Q4
9.60
ND
2011:Q1
8.90
ND
2011:Q2
9.10
9.10
2011:Q3
9.09
9.09
2011:Q4
8.82
9.08
2012:Q1
8.79
9.03
2012:Q2
8.77
8.90
2012:Q3
8.70
8.76
2012:Q4
8.64
8.60
2013:Q1
8.48
8.44
2013:Q2
8.37
8.36
2013:Q3
8.27
8.27
2013:Q4
8.19
8.14
Forecast
The 70% confidence interval begins at about 9.1 in 2011:Q2, follows the contour of the December Tealbook curve, and ends at about
[7.1,9.3].
Middleright panel
PCE Prices Excluding Food and Energy
Percent change, annual rate
Period
2010:Q1
December Tealbook
October Tealbook
1.13
ND
Period
December Tealbook
October Tealbook
2010:Q2
1.28
ND
2010:Q3
0.75
ND
2010:Q4
0.66
ND
2011:Q1
1.56
ND
2011:Q2
2.26
2.26
2011:Q3
2.04
2.07
2011:Q4
1.08
1.47
2012:Q1
1.58
1.64
2012:Q2
1.51
1.57
2012:Q3
1.46
1.46
2012:Q4
1.44
1.40
2013:Q1
1.42
1.40
2013:Q2
1.42
1.40
2013:Q3
1.42
1.40
2013:Q4
1.43
1.41
Forecast
The 70% confidence interval begins at about 2.26 in 2011:Q2, follows the contour of the December Tealbook curve, and ends at about
[0.50,2.25].
Bottomleft panel
Measures of Monthly Change in Private Payroll Employment
Thousands
Period
Establishment survey
Household survey (adjusted)
Model estimate
January 2007
176.6
231
148.25
February 2007
59.7
82
119.87
201.9
203
117.05
April 2007
53.5
745
79.55
May 2007
108.0
499
74.17
June 2007
51.2
25
48.27
July 2007
15.8
91
17.20
95.0
136
15.78
5.0
284
13.13
74.0
235
46.99
November 2007
105.7
535
57.50
December 2007
39.5
401
22.15
January 2008
1.2
134
24.05
129.5
357
87.22
85.9
90
116.62
April 2008
186.0
73
170.81
May 2008
235.3
68
215.15
June 2008
225.3
100
241.67
July 2008
265.0
242
286.96
August 2008
312.8
280
346.83
September 2008
438.2
292
432.57
October 2008
464.0
201
531.52
March 2007
August 2007
September 2007
October 2007
February 2008
March 2008
Period
Establishment survey
Household survey (adjusted)
Model estimate
November 2008
814.0
885
665.26
December 2008
636.0
689
687.55
January 2009
841.0
454
742.17
February 2009
721.0
249
725.83
March 2009
787.0
612
710.13
April 2009
773.0
593
640.87
May 2009
326.0
703
474.80
June 2009
438.0
646
412.87
July 2009
284.6
416
319.79
August 2009
217.4
979
261.78
September 2009
213.0
250
224.22
October 2009
250.0
327
189.01
November 2009
34.0
208
109.65
December 2009
102.0
596
78.24
January 2010
42.0
824
21.76
February 2010
21.0
4
46.88
March 2010
144.0
467
67.20
April 2010
229.0
49
118.92
May 2010
48.0
601
92.22
June 2010
65.0
341
84.84
July 2010
103.0
110
96.56
August 2010
100.0
570
106.64
September 2010
109.0
256
110.97
October 2010
143.0
334
126.15
November 2010
128.0
148
139.05
December 2010
167.0
339
163.56
January 2011
94.0
172
179.17
February 2011
261.0
149
184.13
March 2011
219.0
327
189.07
April 2011
241.0
182
185.65
May 2011
99.0
540
141.47
June 2011
75.0
410
119.08
July 2011
173.0
63
138.85
August 2011
118.3
150
137.98
September 2011
175.0
598
152.14
October 2011
117.0
24
139.03
November 2011
140.0
613
144.73
Bottomright panel
Estimated Stall Probability
Percent
Period
Current
Previous
1985:Q1
0
0
1985:Q2
0
0
1985:Q3
0
0
Period
Current
Previous
1985:Q4
0
0
1986:Q1
0
0
1986:Q2
0
0
1986:Q3
0
0
1986:Q4
0
0
1987:Q1
0
0
1987:Q2
0
0
1987:Q3
0
0
1987:Q4
0
0
1988:Q1
0
0
1988:Q2
2
1
1988:Q3
6
5
1988:Q4
13
12
1989:Q1
54
51
1989:Q2
89
88
1989:Q3
94
93
1989:Q4
97
96
1990:Q1
98
97
1990:Q2
94
94
1990:Q3
5
6
1990:Q4
3
3
1991:Q1
2
2
1991:Q2
2
3
1991:Q3
8
8
1991:Q4
1
1
1992:Q1
1
1
1992:Q2
0
0
1992:Q3
0
0
1992:Q4
0
0
1993:Q1
0
0
1993:Q2
0
0
1993:Q3
0
0
1993:Q4
0
0
1994:Q1
0
0
1994:Q2
0
0
1994:Q3
0
0
1994:Q4
0
0
1995:Q1
1
1
1995:Q2
0
0
1995:Q3
0
0
1995:Q4
0
0
1996:Q1
0
0
1996:Q2
0
0
1996:Q3
0
0
1996:Q4
0
0
Period
Current
Previous
1997:Q1
0
0
1997:Q2
0
0
1997:Q3
0
0
1997:Q4
0
0
1998:Q1
0
0
1998:Q2
0
0
1998:Q3
0
0
1998:Q4
0
0
1999:Q1
0
0
1999:Q2
0
0
1999:Q3
0
0
1999:Q4
0
0
2000:Q1
1
1
2000:Q2
32
30
2000:Q3
55
53
2000:Q4
89
88
2001:Q1
51
53
2001:Q2
51
52
2001:Q3
9
9
2001:Q4
1
1
2002:Q1
1
1
2002:Q2
16
15
2002:Q3
29
27
2002:Q4
19
18
2003:Q1
20
18
2003:Q2
0
0
2003:Q3
0
0
2003:Q4
0
0
2004:Q1
0
0
2004:Q2
0
0
2004:Q3
0
0
2004:Q4
0
0
2005:Q1
0
0
2005:Q2
1
1
2005:Q3
1
1
2005:Q4
2
2
2006:Q1
5
5
2006:Q2
42
39
2006:Q3
62
60
2006:Q4
79
77
2007:Q1
99
98
2007:Q2
99
99
2007:Q3
98
98
2007:Q4
84
87
2008:Q1
69
75
Period
Current
Previous
2008:Q2
13
27
2008:Q3
1
1
2008:Q4
0
0
2009:Q1
0
0
2009:Q2
0
0
2009:Q3
0
0
2009:Q4
0
0
2010:Q1
1
0
2010:Q2
8
5
2010:Q3
25
14
2010:Q4
42
24
2011:Q1
53
31
2011:Q2
52
29
2011:Q3
54
32
Shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research: July 1990March 1991,
March 2001November 2001, and December 2007June 2009.
Appendix 3: Materials used by Mr. English
Material for
FOMC Briefing on Monetary Policy Alternatives
Bill English
December 13, 2011
November FOMC Statement
1. Information received since the Federal Open Market Committee met in September indicates that economic
growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had
weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor
market conditions, and the unemployment rate remains elevated. Household spending has increased at a
somewhat faster pace in recent months. Business investment in equipment and software has continued to
expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed.
Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have
declined from their peaks. Longerterm inflation expectations have remained stable.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.
The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently
anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be
consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook,
including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming
quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy
and other commodity price increases dissipate further. However, the Committee will continue to pay close
attention to the evolution of inflation and inflation expectations.
3. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent
with the dual mandate, the Committee decided today to continue its program to extend the average maturity of
its holdings of securities as announced in September. The Committee is maintaining its existing policies of
reinvesting principal payments from its holdings of agency debt and agency mortgagebacked securities in agency
mortgagebacked securities and of rolling over maturing Treasury securities at auction. The Committee will
regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as
appropriate.
4. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently
anticipates that economic conditionsincluding low rates of resource utilization and a subdued outlook for inflation
over the medium runare likely to warrant exceptionally low levels for the federal funds rate at least through mid
2013.
5. The Committee will continue to assess the economic outlook in light of incoming information and is prepared
to employ its tools to promote a stronger economic recovery in a context of price stability.
[Note: In the December FOMC Statement Alternatives, emphasis (strikethrough) indicates strikethrough text in
the original document, and strong emphasis (bold) indicates bold red underlined text in the original document.]
December FOMC StatementAlternative A
1. Information received since the Federal Open Market Committee met in September November indicates
suggests that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the
temporary factors that had weighed on growth earlier in the year the economy has been expanding modestly,
while global growth appears to be slowing. Nonetheless Although recent indicators point to continuing
weakness some improvement in overall labor market conditions, and the unemployment rate remains elevated.
Household spending has increased at a somewhat faster pace in recent months. continued to advance, but
business fixed investment in equipment and software has continued to expand appears to be increasing less
rapidly but investment in nonresidential structures is still weak, and the housing sector remains depressed.
Inflation appears to have has moderated since earlier in the year, as prices of energy and some commodities
have declined from their peaks. and longerterm inflation expectations have remained stable.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.
The Committee continues to expects that, absent further policy action, a moderate the pace of economic
growth would remain modest over coming quarters and consequently anticipates that the unemployment rate
will would decline only very gradually toward levels that the Committee judges to be consistent with its dual
mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global
financial markets. the Committee also anticipates that inflation will would settle, over coming quarters, at levels
at or below those consistent with the Committee's dual mandate as the effects of past energy and other
commodity price increases dissipate further. Strains in global financial markets continue to pose significant
downside risks to the economic outlook, and the risks to the outlook for inflation also appear to be
tilted to the downside. However, the Committee will continue to pay close attention to the evolution of inflation
and inflation expectations.
3. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent
with the dual mandate, the Committee decided today to purchase a further $500 billion of agency mortgage
backed securities by the end of December 2012. In addition, the Committee intends to continue its
program to extend the average maturity of its holdings of securities as announced in September. The Committee
is also maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and
agency mortgagebacked securities in agency mortgagebacked securities and of rolling over maturing Treasury
securities at auction. These programs should put downward pressure on longerterm interest rates,
provide support to mortgage markets, and help make broader financial conditions more accommodative.
The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust
those holdings as appropriate.
OR
3′. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent
with the dual mandate, the Committee decided today to undertake a program of purchases of agency
mortgagebacked securities. The Committee has initially authorized purchases of agency mortgage
backed securities of $40 billion per month, and will adjust this program as needed to foster its
objectives of maximum employment and stable prices. In addition, the Committee will continue its
program to extend the average maturity of its holdings of securities as announced in September. The Committee
is also maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and
agency mortgagebacked securities in agency mortgagebacked securities and of rolling over maturing Treasury
securities at auction. These programs should put downward pressure on longerterm interest rates,
provide support to mortgage markets, and help make broader financial conditions more accommodative.
The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust
those holdings as appropriate.
4. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent. and
currently The Committee now anticipates that economic conditionsincluding low rates of resource utilization
and a subdued outlook for inflation over the medium runare likely to warrant this exceptionally low levels range
for the federal funds rate at least through mid 2013 the end of 2014. Specifically, given its anticipated path
for monetary policy, the Committee currently projects that the unemployment rate will be roughly [ 7 ]
percent and the inflation rate (as measured by the price index for personal consumption expenditures)
will be around [ 2 ] percent at the end of 2014.
5. The Committee will continue to assess monitor the economic outlook in light of incoming information and
financial developments and is prepared to employ its tools to promote a stronger economic recovery in a
context of price stability.
December FOMC StatementAlternative B
1. Information received since the Federal Open Market Committee met in September November indicates
suggests that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the
temporary factors that had weighed on growth earlier in the year the economy has been expanding
moderately, notwithstanding some apparent slowing in global growth. Nonetheless While recent indicators
point to continuing weakness some improvement in overall labor market conditions, and the unemployment rate
remains elevated. Household spending has increased at a somewhat faster pace in recent months. continued to
advance, but business fixed investment in equipment and software has continued to expand appears to be
increasing less rapidly but investment in nonresidential structures is still weak, and the housing sector remains
depressed. Inflation appears to have has moderated since earlier in the year, as prices of energy and some
commodities have declined from their peaks. and longerterm inflation expectations have remained stable.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.
The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently
anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be
consistent with its dual mandate. Moreover, there are Strains in global financial markets continue to pose
significant downside risks to the economic outlook, including strains in global financial markets. The Committee
also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the
Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further.
However, the Committee will continue to pay close attention to the evolution of inflation and inflation
expectations.
3. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent
with the dual mandate, the Committee decided today to continue its program to extend the average maturity of
its holdings of securities as announced in September. The Committee is maintaining its existing policies of
reinvesting principal payments from its holdings of agency debt and agency mortgagebacked securities in agency
mortgagebacked securities and of rolling over maturing Treasury securities at auction. The Committee will
regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as
appropriate.
4. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently
anticipates that economic conditionsincluding low rates of resource utilization and a subdued outlook for inflation
over the medium runare likely to warrant exceptionally low levels for the federal funds rate at least through mid
2013.
5. The Committee will continue to assess monitor the economic outlook in light of incoming information and
financial developments and is prepared to employ its tools to promote a stronger economic recovery in a
context of price stability.
December FOMC StatementAlternative C
1. Information received since the Federal Open Market Committee met in September November indicates
suggests that the pace of economic growth activity has strengthened somewhat in the third quarter, reflecting
in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent
indicators point to continuing weakness in overall labor market conditions, and Although the unemployment rate
remains elevated, it has declined of late, and employment has continued to increase. Household spending
has increased at a somewhat faster pace in recent months advanced further, and business fixed investment in
equipment and software has continued to expand, but investment in nonresidential structures is still weak, and
the housing sector remains depressed. Inflation appears to have has moderated only somewhat since earlier in
the year, despite a decline in the as prices of energy and some commodities have declined from their peaks.
Longerterm inflation expectations have remained stable.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.
The Committee continues to expects a moderate pace some strengthening of economic growth over coming
quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that
the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to
the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation
will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the
effects of past energy and other commodity price increases dissipate further. However, the Committee will
continue to pay close attention to the evolution of inflation and inflation expectations.
3. To support a stronger the economic recovery and to while helping to ensure that inflation, over time, is at
does not exceed levels that are consistent with the dual mandate, the Committee decided today to continue its
reduce by half the size of the program to extend the average maturity of its holdings of securities as that it
announced in September. In particular, the Committee intends to limit purchases and sales of securities
under this program to $200 billion each and to complete these operations by the end of March 2012. The
Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt
and agency mortgagebacked securities in agency mortgagebacked securities and of rolling over maturing
Treasury securities at auction. The Committee will regularly review the size and composition of its securities
holdings and is prepared to adjust those holdings as appropriate.
4. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently
now anticipates that economic conditionsincluding low rates of resource utilization and a subdued outlook for
inflation over the medium runare likely to warrant exceptionally low levels for the federal funds rate at least
through mid 2013 2012.
5. The Committee will continue to assess the economic outlook in light of incoming information and is prepared
to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability its
objectives of maximum employment and stable prices.
November 2011 FOMC Directive
The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and
promote sustainable growth in output. To further its longrun objectives, the Committee seeks conditions in reserve
markets consistent with federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to
continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury
securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion,
and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion.
The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities
into new issues and of reinvesting principal payments on all agency debt and agency mortgagebacked securities
in the System Open Market Account in agency mortgagebacked securities in order to maintain the total face
value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll
transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System
Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments
regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of
maximum employment and price stability.
[Note: In the December 2011 FOMC Directive Alternatives, emphasis (strikethrough) indicates strikethrough text
in the original document, and strong emphasis (bold) indicates bold red underlined text in the original document.]
December 2011 FOMC Directive Alternative A
The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and
promote sustainable growth in output. To further its longrun objectives, the Committee seeks conditions in reserve
markets consistent with federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to
continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury
securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion,
and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. [
The Committee also directs the Desk to execute purchases of agency mortgagebacked securities in
order to increase the total face value of domestic securities held in the System Open Market Account to
approximately $3.1 trillion by the end of December 2012. | The Committee also directs the Desk to
execute purchases of agency mortgagebacked securities in order to increase the total face value of
domestic securities held in the System Open Market Account by approximately $40 billion per month. ]
The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities
into new issues and of reinvesting principal payments on all agency debt and agency mortgagebacked securities
in the System Open Market Account in agency mortgagebacked securities in order to maintain the total face
value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll
transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System
Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments
regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of
maximum employment and price stability.
December 2011 FOMC Directive Alternative B
The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and
promote sustainable growth in output. To further its longrun objectives, the Committee seeks conditions in reserve
markets consistent with federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to
continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury
securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion,
and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion.
The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities
into new issues and of reinvesting principal payments on all agency debt and agency mortgagebacked securities
in the System Open Market Account in agency mortgagebacked securities in order to maintain the total face
value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll
transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System
Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments
regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of
maximum employment and price stability.
December 2011 FOMC Directive Alternative C
The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and
promote sustainable growth in output. To further its longrun objectives, the Committee seeks conditions in reserve
markets consistent with federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to
continue modify the maturity extension program it began in September so as to purchase, by the end of June
March 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face
value of $400 $200 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total
face value of $400 $200 billion. The Committee also directs the Desk to maintain its existing policies of rolling
over maturing Treasury securities into new issues and of reinvesting principal payments on all agency debt and
agency mortgagebacked securities in the System Open Market Account in agency mortgagebacked securities in
order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs
the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency
MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee
informed of ongoing developments regarding the System's balance sheet that could affect the attainment over
time of the Committee's objectives of maximum employment and price stability.
Appendix 4: Materials used by Mr. Krane
Material for
FOMC Briefing on Communications Initiatives
Spencer Krane
December 13, 2011
Exhibit 1: Overview of FOMC Participants' Assessments of Appropriate
Policy
Top panel
Appropriate Timing of Policy Firming
First Increase in the Target Federal Funds Rate
2012
2013
2014
2015
2016
Number of Participants
4
2
7
3
1
NOTE: In the upper panel, the height of each bar denotes the number of FOMC participants who judge that, under appropriate policy and
in the absence of further shocks to the economy, the first increase in the target federal funds rate from its current range of 0 to ¼ percent
will occur in the specified calendar year.
Bottom panel
Appropriate Pace of Policy Firming
Number of Participants With Projected Targets
Target Federal Funds Rate
in Fourth Quarter (Percent)
2012
2013
2014
Longer Run
0.25
13
11
5
0.50
1
2
0.75
1
1
4
1.00
2
1.25
1.50
1
2
1.75
1
2.00
1
2.25
2.50
1
3
2.75
1
3.00
3.25
3.50
3.75
3
4.00
1
7
4.25
2
4.50
4
4.75
1
NOTE: In the lower panel, each shaded circle indicates the value (rounded to the nearest 0.25 percent) of an individual participant's
judgment of the appropriate level of the target federal funds rate in the fourth quarter of the specified calendar year or over the longer
run.
Exhibit 2: Mockup of New SEP Narrative
Overview
As shown in figure 2, most participants judged that highly accommodative monetary policy was likely to be
warranted over coming years in order to promote a stronger economic recovery in a context of price stability. In
particular, as shown in the upper panel, about twothirds of participants anticipated that, under appropriate
monetary policy, the target federal funds rate would stay at its current range at least through the end of 2013, and
nearly all of those participants expected policy firming to commence in 2014 or 2015. The remaining participants
judged that raising the target funds rate would be appropriate within the next two years in order to forestall
inflationary pressures. As shown in the lower panel, participants generally agreed that the pace of firming was
likely to be gradual and that the target funds rate in the fourth quarter of 2014 would still be well below their
assessments of its longerrun level.
Appropriate Monetary Policy
Most participants anticipated that, under appropriate monetary policy, the target federal funds rate would stay at
or close to its current range of 0 to ¼ percent through the fourth quarter of 2013. In particular, seven participants
expected that policy firming would commence during 2014, while four others judged that an increase in the target
funds rate would not be appropriate until after the end of 2014. In contrast, six participants judged that an
increase in the target rate would be appropriate within the next two years, and those participants expected the
target rate to be increased to around 1.5 to 4 percent by the fourth quarter of 2014.
Participants generally viewed the current weak economic conditions and a moderating outlook for inflation as
warranting highly accommodative monetary policy for an extended period, though at some point a reduction in
accommodation would become appropriate in order for the recovery to proceed in the context of price stability. A
number of other key factors informed participants' projections of the appropriate path for the policy rate, including
their judgments regarding the extent to which current conditions deviate from longerrun goals and the
mechanisms through which policy actions affect economic activity and inflation over time.
Nearly all participants projected that the target federal funds rate in late 2014 would still be substantially below its
longerrun level. Most expected that the target rate would converge over time to a value in the interval of about
4.0 to 4.5 percent. However, a few participants' longerrun projections were a notch lower at around 3.75 percent,
and one participant's projection was about 4.75 percent. Participants noted that their longerrun projections
reflected their judgments of the mandateconsistent inflation rate as well as their estimates of the longerrun
equilibrium level of the real federal funds rate.
Figure 4.E depicts the distribution of Committee participants' judgments regarding the appropriate level of the
target federal funds rate in the fourth quarter of each calendar year from 2012 to 2014 and over the longer run.
Participants noted a number of factors that contributed to the dispersion in these judgments. In particular, those
participants who expected that policy firming should commence within the next two years cited the need to
forestall inflation pressures, the implications of financial and structural imbalances, and the importance of keeping
inflation expectations firmly anchored. In contrast, participants who anticipated a later onset of policy firming
generally referred to the slow pace of economic growth, persistently low levels of resource utilization, the subdued
mediumterm outlook for inflation, and the degree to which monetary policy is constrained by the effective lower
bound on the federal funds rate.
Some participants noted that appropriate monetary policy would involve further clarification of the Committee's
forward guidance regarding the likely path of the target federal funds rate. A few judged that further expansion of
the FOMC's securities holdings could be appropriate to provide additional monetary accommodation, whereas
others indicated that the Federal Reserve's balance sheet would need to shrink substantially over coming years in
conjunction with the process of policy firming.
Exhibit 3: Approaches of Foreign Central Banks
Top panel
Market Expectations:
Bank of England, Bank of Japan
Constant Interest Rates:
Reserve Bank of Australia, Swiss National Bank
Staff Forecast:
European Central Bank
Projections of Appropriate Policy: Reserve Bank of New Zealand, Norges Bank, Sveriges Riksbank
Note: The Bank of England is also providing quantitative assumptions for asset purchases, and the Swiss National Bank noted their
current forecast was conditioned on a further weakening in the Swiss franc.
Bottom panel
Norges Bank Policy Projections, October 2011
Graph taken from Norges Bank October 2011 monetary report ("Chart 1.24a Key policy rate in the baseline
scenario and in the alternative scenarios. Per cent. 2008 Q1 2014 Q4") showing their baseline policy rate
assumption, rates under two alternative scenarios ("Increased growth abroad" and "Weaker growth abroad"), and
30, 50, 70, and 90 percent confidence bands around the baseline rates. Rates are plotted for 20082014.
Source: Norges Bank
Exhibit 4: The FOMC's LongerRun Goals and Policy Strategy
Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached
broad agreement on the following principles regarding its longerrun goals and its monetary policy strategy. The
Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual
organizational meeting each January.
1. The FOMC is strongly committed to fulfilling its statutory mandate from the Congress of promoting
maximum employment, price stability, and moderate longterm interest rates. The Committee seeks to
explain its monetary policy decisions to the public as clearly as possible. Such clarity not only
enhances transparency and accountability, which are essential in a democratic society, but also
facilitates wellinformed decisionmaking by households and businesses, reduces economic and
financial uncertainty, and increases the effectiveness of monetary policy.
2. Inflation, employment, and longterm interest rates fluctuate over time in response to economic
disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a
lag. Therefore, the Committee's policy decisions at each point in time reflect its longerrun goals, its
mediumterm outlook, and its assessments of the balance of risks.
3. The inflation rate over the longer run is primarily determined by monetary policy, and hence the
Committee has the latitude to specify a longerrun goal for inflation. The Committee judges that
inflation 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.
Communicating this inflation goal clearly to the public helps keep longerterm inflation expectations
firmly anchored, thereby fostering price stability and moderate longterm interest rates and enhancing
the Committee's ability to promote maximum employment in the face of significant economic
disturbances.
4. The maximum level of employment is largely determined by nonmonetary factors, such as the pace of
technological innovation and the structure of the labor market, that may change over time and that
may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for
employment; rather, the Committee's policy decisions must be informed by assessments of the
maximum level of employment, recognizing that such assessments are necessarily uncertain and
subject to revision. The Committee considers a wide range of indicators in making these assessments,
and information about Committee participants' estimates of the longerrun normal rates of output
growth and unemployment is published four times per year in the FOMC's Summary of Economic
Projections. For example, in the most recent projections, FOMC participants' estimates of the longer
run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly
unchanged from last January but substantially higher than the corresponding interval several years
earlier.
5. In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longerrun
goal and deviations of employment from the Committee's assessments of its maximum level. The
Committee follows a balanced approach in promoting these objectives, taking into account the
magnitude of the deviations and the potentially different time horizons over which employment and
inflation are projected to return to levels judged consistent with its mandate.
Exhibit 5: Questions for Discussion of FOMC Communications Initiatives
1. Enhancements to the Summary of Economic Projections
a. In its December 2 memo to the FOMC, the Subcommittee on Communications
recommended a particular approach for incorporating policy projections into the Summary
of Economic Projections (SEP). Does that approach seem reasonable, or do you think that
a substantially different approach would be preferable?
b. Do you concur with the Subcommittee's recommendation to start publishing policy
projections in the January SEP?
c. Are there any other potential enhancements to the SEPsuch as the items that were
noted in the concluding paragraph of the December 2 memothat the Subcommittee
should explore over coming months?
2. Statement of LongerRun Goals and Policy Strategy
a. In its December 6 memo to the FOMC, the Subcommittee presented a draft statement
regarding the Committee's longerrun goals and policy strategy. Could you support the
adoption of a statement along these lines? If not, what modifications would be needed to
garner your support?
b. Do you agree that such a statement should be a "living and breathing document" that
would be reaffirmed, with any appropriate adjustments, at the annual organizational
meeting each January? If so, are there any further aspects of the Committee's longerrun
goals and policy strategy that you think should be clarified and communicated over time?
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