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January 25–26, 2011
Authorized for Public Release
Appendix 1: Materials used by Messrs. Fallick and Faberman, and Ms. Şahin
231 of 282
January 25–26, 2011
Authorized for Public Release
Class II FOMC – Restricted (FR)
Material for
FOMC Briefing on Structural Unemployment
Bruce Fallick, Jason Faberman, and Aysegul Sahin
January 25, 2011
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January 25–26, 2011
Authorized for Public Release
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Exhibit 4
Theoretical Motivation
The Matching Function
•
•
•
•
Ht = total hires (or matches)
Vt = total vacancies
Ut = total unemployment
µt = “matching efficiency”
parameter
H t = µtVt
1−α
U tα
Matching Efficiency
• Lower efficiency implies fewer hires for a given Ut, Vt
• Decline in efficiency shifts Beveridge curve out
• Efficiency parameter can change because of structural or
cyclical factors (i.e., any changes not captured by Ut or Vt)
Shifts and Movements in the Beveridge Curve
Things that shift the Beveridge curve
• Changes in matching efficiency
• Changes in layoff, separation rates
• “Looping” to new equilibrium
Things that affect measured
matching efficiency
• Mismatch
• Behavior of quitting workers
• Search efforts of workers, firms
Authorized for Public Release
January 25–26, 2011
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Exhibit 5
Extended Unemployment Insurance Benefits
Unemployment Duration by Reason for Unemployment
Weeks Unemployed
40
Extended UI Benefits
30
Quits/entrants
(UI ineligible)
20
Job losers
(UI eligible)
10
0
2005
2006
2007
2008
2009
• Job loser’s behavior:
+ 0.8% pts to Ut
• Transitions out of
unemployment:
+ 0.9 to 1.7% pts to Ut
• Preferred estimate
across studies:
about +0.8% pts to Ut
2010
Note: Through October, 2010, three-month moving average. From Daly et al. (2011), using CPS
data. Dashed vertical lines indicate effective dates for extensions of maximum UI duration.
Unemployment Transition Rates by Unemployment Duration
Transitions from Unemployment to
Employment
Note: From Fujita (2010), using CPS data.
Transitions from Unemployment to
Out of the Labor Force
Authorized for Public Release
January 25–26, 2011
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Exhibit 6
Employer Recruiting Intensity
Recruiting Intensity per Vacancy over Time
1.3
Index Value
1.2
Recruiting Intensity
1.1
Low recruiting
intensity accounts
for 1.4% of Ut
Rise could be
structural or cyclical
1.0
0.9
0.8
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0.7
Note: From Davis, Faberman, and Haltiwanger (2010), using JOLTS data. JOLTS data begin in
December 2000. Scaled so that average value is equal to one over the sample period.
Actual vs. Counterfactual Unemployment Rate, Holding Recruiting
Intensity Constant
12.0
11.0
Percent of
Labor Force
10.0
Actual Unemployment Rate
9.0
Rate Predicted from Time-Invariant
Recruiting Intensity
8.0
7.0
6.0
5.0
4.0
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
3.0
Note: From Davis, Faberman, and Haltiwanger (2010), using JOLTS and CPS data.
Authorized for Public Release
January 25–26, 2011
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Exhibit 7
General Measures of Mismatch
Unemployment Outflow Rates by Industry
Rate
0.8
0.7
0.6
Rate
0.8
Construction
0.7
Education and
Health
0.6
0.5
0.5
0.4
0.4
0.3
0.2
Financial
Total
0.3
Information
0.2
Durable Goods
0.1
0.1
0
0
2000
2002
2004
2006
2008
2010
Note: Elsby, Hobijn, Şahin (2010), CPS. Series 12-Month Moving Average.
Unemployment Rate of Recent College Graduates
Percent
12
Percent
12
10
10
All
8
8
6
6
4
4
<25 College
Graduates
2
2
0
1976
0
1983
1990
Note: Aaronson, Barlevy, Mazumder (2011), CPS.
1997
2004
2011
Authorized for Public Release
January 25–26, 2011
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Exhibit 8
Skill Mismatch
Mismatch Indices by Industry
Actual and Counterfactual Unemployment (Industry)
Index
0.35
Index
0.15
0.12
0.30
Rate
12.0
Rate
3.0
10.0
2.5
8.0
0.09
0.25
2.0
6.0
Mu
(Left Axis)
4.0
0.03
2.0
Mh (Right Axis)
2003
2005
2007
1.5
0.06
0.20
0.15
2001
Unemployment Rate
(Left Axis)
2009
0
2011
Note: Şahin, Song, Topa, Violante (2010), JOLTS, CPS. Series 3-Month Moving Average.
0.0
2001
Counterfactual Unemployment
(Left Axis)
1.0
0.5
Difference
(Right Axis)
2003
2005
2007
2009
0.0
2011
Note: Şahin, Song, Topa, Violante (2010), JOLTS, CPS.
Mismatch Indices by Occupation
Actual and Counterfactual Unemployment (Occupation)
Index
0.40
Index
0.18
5.0
8.0
0.38
Rate
6.0
10.0
Mu (Left Axis)
Rate
12.0
4.0
0.16
0.36
0.14
0.34
6.0
Unemployment Rate
(Left Axis)
3.0
0.12
4.0
0.32
2005
Mh (Right Axis)
2006
2007
2.0
2008
2009
2010
0.10
2011
Note: Şahin, Song, Topa, Violante (2010), The Conference Board Help Wanted OnLine Data
Series, CPS. Series 3-Month Moving Average.
0.0
2005
Difference
(Right Axis)
1.0
Counterfactual Unemployment
(Left Axis)
2006
2007
2008
2009
2.0
2010
0.0
2011
Note: Şahin, Song, Topa, Violante (2010), The Conference Board Help Wanted OnLine Data
Series, CPS.
Authorized for Public Release
January 25–26, 2011
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Exhibit 9
House Lock and Geographic Mismatch
Rates of Migration between States
Interstate Migration Rate (%)
3.5
Interstate Migration Rate (%)
3.5
Published Data
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
Non-Imputed
Data
1.0
1.0
0.5
0.5
0.0
0.0
1996
1998
2000
2002
2004
2006
2008
2010
Note: Kaplan and Schulhofer-Wohl (2010), CPS.
Average Unemployment Duration by 12-Month Change in StateLevel House Price
Average Duration (in weeks)
30
Average Duration (in weeks)
30
25
25
Renter
20
20
15
15
Owner
10
10
5
5
0
0
-40
-32
-24
-16
-8
0
8
16
Percent Change in House Prices
Note: Foote and Ryan (2011), CPS, FHFA.
24
32
40
Authorized for Public Release
January 25–26, 2011
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Exhibit 10
Long‐term Unemployment and Hysteresis
Unemployment-to-Employment Outflow Rates by Unemployment Duration
Rate
Rate
0.5
0.5
0.4
0.4
<5 Weeks
0.3
0.3
5-14 Weeks
0.2
> 27 Weeks
0.1
0
1977
0.2
15-26 Weeks
0.1
0
1982
1987
1992
1997
2002
2007
Note: CPS. Series 12-Month Moving Average.
Unemployment Inflow and Outflow Rates by OECD Countries
Inflow Rate
4.0%
3.5%
3.0%
United States
United States (2010)
2.5%
2.0%
Australia
Canada
New Zealand
Norway
1.5%
Spain United Kingdom Sweden
Ireland France
Japan
Germany
0.5%
Italy Portugal
1.0%
0.0%
0.0%
10.0%
20.0%
30.0%
Outflow Rate
Note: Elsby, Hobijn, Șahin (2009), OECD.
40.0%
50.0%
60.0%
January 25–26, 2011
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Exhibit 11
Summary
•
The following factors have had a measurable effect on the unemployment rate
during 2007‐2010:
Estimated effect on U
o Extended unemployment insurance benefits: + 0.4 to 1.7 percentage points
(preferred estimate around
+ 0.8 percentage point)
o Decline in the recruiting intensity of firms: + 1.4 percentage points
o Skill mismatch across industries:
+ 0.8 percentage point
o Skill mismatch across occupations:
+ 1.4 percentage points
Note: These effects are not additive.
•
The following factors have had no measurable effect on the unemployment rate
during 2007‐2010:
o House lock
o Geographic mismatch
•
Problems facing the U.S. labor market are unlikely to be as severe as the
European‐style hysteresis problem of the 1980s.
January 25–26, 2011
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January 25–26, 2011
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Appendix 2: Materials used by Mr. Sack
245 of 282
January 25–26, 2011
Authorized for Public Release
Class II FOMC - Restricted FR
Material for
FOMC Presentation:
Financial Market Developments and Desk Operations
Brian Sack
January 25, 2011
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Authorized for Public Release
January 25–26, 2011
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Class II FOMC – Restricted FR
Exhibit 1
(1) Treasury Yields
Percent
Percent
Nov.
FOMC
4.0
Dec.
FOMC
(2) Implied Federal Funds Rate Path*
1.00
01/21/11
11/02/10
3.0
0.75
2.0
0.50
0.25
1.0
2-Year
0.0
01/01/10
5-Year
05/01/10
0.00
10-Year
09/01/10
01/01/11
01/24/11
06/24/11
11/24/11
04/24/12
*Based on federal funds and eurodollar futures rates.
Source: Federal Reserve Bank of New York
Source: Bloomberg
(3) Cumulative Size of Asset Purchase Program
Percent
Percent
90
November Survey
80
(4) 10-Year Term Premium*
(Kim-Wright Model)
3.0
FOMC
January Survey
70
2.0
60
50
1.0
40
30
0.0
20
10
0
-1.0
300-599
600-899
900-1199 1200-1499
Source: Federal Reserve Bank of New York Policy Survey
Percent
≥ 1500
($ billions)
(5) Breakeven Inflation Rates
01/03/00
01/03/06
01/03/09
*Based on zero coupon Treasury yield.
Source: Federal Reserve Board of Governors
$ Trillions
4.0
01/03/03
(6) Treasury Debt Outstanding
14.6
FOMC
14.4
3.0
14.2
14.0
13.8
2.0
13.6
1.0
13.4
5-Year, 5-Year Forward
0.0
01/04/10
Projected with SFP Rolloff
13.2
5-Year Spot
Projected without SFP Rolloff
Current Debt Limit
13.0
05/04/10
Source: Federal Reserve Board of Governors
09/04/10
01/04/11
10/01/10
12/01/10
02/01/11
Source: Federal Reserve Board of Governors
04/01/11
Authorized for Public Release
January 25–26, 2011
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Class II FOMC – Restricted FR
Exhibit 2
(7) S&P 500 Index
Indexed to
08/03/09
(8) 5-Month Change in the S&P 500
Percent
50
140
40
FOMC
30
130
20
10
120
0
-10
110
-20
100
-30
-40
90
-50
08/03/09
01/03/10
06/03/10
11/03/10
01/01/95
Source: Bloomberg
01/01/99
01/01/07
01/01/11
Source: Bloomberg
(9) Corporate Bond Spreads
(10) CMBS and ABS Spreads
BPS
950
01/01/03
BPS
390
High Yield (LHS)
Investment Grade (RHS)
850
FOMC
340
BPS
800
Super Senior AAA CMBS
AAA Credit Card ABS
600
FOMC
750
290
400
650
240
550
190
450
140
200
08/03/09
01/03/10
06/03/10
11/03/10
Source: Bank of America
Indexed to
08/03/09
0
08/03/09
01/03/10
06/03/10
11/03/10
Source: JPMorgan Chase
(11) U.S. Trade Weighted Dollar
BPS
(12) 3-Month Funding Spreads to OIS
120
105
FOMC
Euribor Panel (Swapped to Dollars)
Libor Panel
100
FOMC
80
100
60
40
95
20
90
08/03/09
0
01/03/10
06/03/10
Source: Federal Reserve Board of Governors, Bloomberg
11/03/10
08/03/09
Source: Bloomberg
01/03/10
06/03/10
11/03/10
Authorized for Public Release
January 25–26, 2011
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Class II FOMC – Restricted FR
Exhibit 3
(13) Treasury Purchases by Maturity
Percent
(14) Average Bid Size for 10-Year
Treasury Note
$ Millions
120
30
25
FOMC
90
20
60
15
10
30
5
TIPS
17-30
10-17
7-10
5.5-7
4-5.5
2.5-4
1.5-2.5
0
01/01/10
05/01/10
09/01/10
01/01/11
Source: BrokerTec
Source: Federal Reserve Bank of New York
(15) Projected SOMA Reinvestments
$ Billions
0
November FOMC
50
$ Trillions
3.5
(16) Projected Size of Federal Reserve
Securities Holdings*
December FOMC
40
January FOMC
Median
3.0
Interquartile Range
2.5
30
2.0
20
1.5
Jun-11
May-11
Apr-11
0.5
Mar-11
0
Feb-11
1.0
Jan-11
10
Source: Federal Reserve Bank of New York
(17) Probability of Halting Reinvestments
(Over 2 and 5 Year Horizons)
0.0
2009
2010
2011
2012
2013
2014
2015
*Values of end of year estimates.
Source: Federal Reserve Board of Governors, Federal Reserve Bank of New
York Policy Survey
Percent
Percent
100
100
75
75
50
50
25
25
0
(18) Probability of Asset Sales
(Over 2 and 5 Year Horizons)
0
2 Year 5 Year 2 Year 5 Year 2 Year 5 Year
Treasury
Agency
MBS
Source: Federal Reserve Bank of New York Policy Survey
2 Year 5 Year 2 Year 5 Year 2 Year 5 Year
Treasury
Agency
MBS
Source: Federal Reserve Bank of New York Policy Survey
Authorized for Public Release
January 25–26, 2011
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Class II FOMC – Restricted FR
Exhibit 4
(19) Balance Sheet Path under
Baseline Scenario
$ Billions
Percent
3,000
6.0
2,500
5.0
2,000
4.0
1,500
3.0
1,000
2.0
500
1.0
0
(20) Interest Rate Path under
Baseline Scenario
0.0
2010
2013
2016
2019
Source: Staff memo to FOMC
Q1 2010
Q3 2012
Q1 2015
Q3 2017
Q1 2020
Source: Staff memo to FOMC
(21) Net Portfolio Income under
Baseline Scenario
$ Billions
10-Year Treasury Yield
Federal Funds Rate
120
$ Billions
Funding Cost
Net Coupon Income
Capital G/L*
Total
90
(22) Treasury Remittances under
Baseline Scenario
100
75
60
50
30
25
Net Portfolio Income
Remittances to Treasury under Baseline
0
0
-30
2010
2012
2014
2016
2018
2020
*Represents the average between the FRBNY and the Board.
Source: Staff memo to FOMC
$ Billions
2010
2016
2019
Source: Staff memo to FOMC
(23) Effects of Higher Interest Rates on
Treasury Remittances
100
$ Billions
100
Baseline Scenario
High Rate Scenario
75
2013
75
50
25
0
Baseline Scenario
Faster MBS Sales with Baseline Rates
Faster MBS Sales with High Rates
50
25
(24) Effects of Faster MBS Sales on
Treasury Remittances
0
2010
2013
Source: Staff memo to FOMC
2016
2019
2010
2013
Source: Staff memo to FOMC
2016
2019
January 25–26, 2011
Authorized for Public Release
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Appendix 3: Materials used by Messrs. Reifschneider and Kamin, and Ms. Liang
January 25–26, 2011
Authorized for Public Release
CLASS II FOMC - Restricted (FR)
Material for
Staff Presentation on the
Economic Outlook
January 25-26, 2011
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January 25–26, 2011
Authorized for Public Release
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January 25–26, 2011
Authorized for Public Release
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January 25–26, 2011
Authorized for Public Release
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January 25–26, 2011
Authorized for Public Release
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Authorized for Public Release
January 25–26, 2011
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Exhibit 5
Class II FOMC - Restricted (FR)
European Developments
Sovereign Bond Spreads*
German Indicators
Basis points
Irish
Package
Greece
1200
62
Diffusion index*
Total
PMI
1000
800
Jan. 5, 2010 = 100
120
115
110
58
IFO
survey
105
600
Ireland
Portugal
Spain
100
400
54
95
DAX equity index
200
90
Italy
0
Jan
Mar
May
Jul
2010
Sep
Nov
Jan
50
85
Jan
* Long-term yield spreads over German bunds.
Source: Bloomberg.
Mar
May
* 50+ = expansion.
Portugal sovereign
Portugal banks
Spain sovereign
Spain banks
Sep
Nov
Jan
Sovereign Debt-to-GDP Ratios*
Gross Sovereign and Bank Financing Needs*
Billions of euros
Jul
2010
Percent
300
250
200
Greece
160
200
150
120
Ireland
100
Portugal
50
Spain
80
0
2010
2011
2012
2013
* Sovereign is sum of projected fiscal deficit and sovereign bond
redemptions. Bank is marketable debt only. Does not include potential
costs of bank bailouts.
Unit Labor Costs
Greece
Ireland
130
Spain Portugal
120
110
Germany
100
90
Source: Haver Analytics.
* Staff estimates.
2014
2016
2018
2020
150
140
2004
2012
Containing Contagion
2001:Q1 = 100
2002
40
2010
2006
2008
2010
Backing Portugal and Spain will require
)¨ §¥¦¦¥¤ ¢¢(' ¡& % $§ # §# ¦¤¦¥ "
!¦ ¨ ¥ § ©¨ §¥¦¦¥¤ £ ¢¢¡
2009
Critical that back-stop capacity be
expanded.
Horizontal review of banks must:
o be more credible than one last summer.
o require more banks to raise capital.
o be able to help recapitalize weak banks.
Authorized for Public Release
January 25–26, 2011
258 of 282
Exhibit 6
Class II FOMC - Restricted (FR)
Foreign Outlook
Real GDP*
Percent change, annual rate
2010
2012p
3.0
3.3
3.4
3.3
3.6
n.a.
2.5
9.6
-1.1
2.8
5.0
9.9
4.9
3.1
5.0
8.6
4.8
4.2
5.1
8.5
5.0
4.2
1.7
1.4
2.9
1.0
4.5
1.3
1.5
-2.0
2.7
-1.6
2.1
1.2
2.0
2.8
1.7
2.4
2.2
2.5
2.7
2.0
Q4e
5.6
4.6
2.1
3.3
8.1
9.7
12.3
5.2
3.6
2.7
2.9
3.9
4.9
1. Total Foreign
2. June Tealbook
3.
4.
5.
6.
2011p
Q3
H1
Emerging Market Economies
China
Emerging Asia ex. China
Latin America
7. Advanced Foreign Economies
8.
Euro Area
9.
United Kingdom
10.
Canada
11.
Japan
* GDP aggregates weighted by shares of U.S. merchandise exports. Table reflects January Tealbook updated for data.
Industrial Production*
Jan. 2006 = 100
Oct.
Nominal Exports of Goods*
Jan. 2006 = 100
125
Oct.
120
AFE
Oct.
140
130
0
120
-2
100
95
AFE
100
85
80
2006 2007 2008 2009 2010
90
2
Advanced foreign
economies
110
U.S.
90
2006 2007 2008 2009 2010
4
Emerging market
economies
Nov.
105
Dec.
6
Nov.
110
U.S.
Percent*
160
150
EME
115
EME
Output Gaps
-4
-6
United States
2008 2009 2010 2011 2012
* Weighted by share of U.S. merchandise
exports.
* Dollar value; weighted by share of
U.S. merchandise exports.
* Deviation from potential GDP.
Policy Rates
CPI Ex. Food and Energy*
-8
BBB Corporate Spreads
Percent
United Kingdom
6
Four-quarter percent change
5
4
Euro
area
4
Basis points
Weekly
3
United
Kingdom
600
500
2
Euro area
400
3
1
Canada
300
2
Euro area
Japan
1
Japan
-1
0
2007 2008 2009 2010 2011 2012
-1
United
Kingdom
0
2006
2008
* Staff estimates.
2010
2012
-2
200
100
Japan
2007
2008
2009
2010
0
Authorized for Public Release
January 25–26, 2011
259 of 282
Exhibit 7
Class II FOMC - Restricted (FR)
Asset Bubbles and Commodity Prices
Flows to EME Dedicated Funds*
Real Exchange Rates Against the Dollar (USD/FC)
Billions of U.S. dollars
Jan. 2007 = 100
18
Monthly
Monthly
150
140
12
130
China
6
120
Brazil
Emerging Markets
0
110
100
Mexico
-6
90
80
-12
Bond funds
Equity funds
Foreign
Appreciation
70
Korea
-18
2007
2008
2009
60
2010
2007
* January 2011 flows are based on data through January 19th.
Property Prices
2008
Percent
180
160
Hong
Kong
Emerging Asia
2010
Policy Rates
Corporate Debt Spreads*
Jan. 2007 = 100
2009
Percent
30
25
15
Brazil
10
20
140
Mexico
15
120
China*
Latin
America
5
10
China
Korea
100
5
Singapore*
80
2007
2008
2009
* Data are quarterly.
2010
0
* Source: Merrill Lynch. U.S. dollar-denominated
debt over five-year Treasury rate, composite BBrating for Asia, B for Latin America.
Emerging Market CPI
0
2007
2002 2004 2006 2008 2010
2009
2011
* Rate for China is the one-year lending rate.
Commodity Prices
12-month percent change
9
120
Jan. 2008 = 100
Dollars per barrel
150
Headline CPI
110
6
120
Nonfuel
index
100
90
90
Ex. food
3
80
60
Oil import
price
70
0
2006
2007
2008
2009
2010
60
30
2007
2008
2009
2010
2011
2012
Authorized for Public Release
January 25–26, 2011
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Exhibit 8
Class II FOMC - Restricted (FR)
U.S. Trade Outlook
Real Exports and Imports
Contribution of Net Exports to Real GDP Growth
Percent change, a.r.
Percentage points, a.r.
40
Q4
30
20
4
3
H1
2
Real exports
10
1
0
0
H2
Real imports
-10
Q1
-1
Q3
-20
-2
-30
-3
Q2
-40
2008
2009
2010
2011
2012
2009
Imports and Industrial Production*
-4
2010
2011
2012
Real Core Exports and Imports*
Change in import penetration (percentage points)**
Billions of chained (2005) dollars, a.r.
2.5
2.0
1600
Actual/forecast
Model solution
1400
1.5
1.0
Imports
1200
0.5
0.0
1000
Exports
-10
-5
0
5
10
15
20
25
Industrial production (percent change, a.r.)**
30
-0.5
35
800
2008
* 21 disaggregated manufacturing sectors.
** From 2009:Q2 to 2010:Q3.
2009
2010
2011
2012
* Core exports exclude computers, semiconductors, and services.
Core imports also exclude petroleum and natural gas.
Current Account Balance
Broad Real Dollar
2008:Q1 = 100
Percent of GDP
135
-2
130
-3
125
120
-4
115
110
-5
105
100
-6
95
90
2000
2002
2004
2006
2008
2010
2012
-7
2002
2004
2006
2008
2010
2012
January 25–26, 2011
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January 25–26, 2011
Authorized for Public Release
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January 25–26, 2011
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January 25–26, 2011
Authorized for Public Release
264 of 282
January 25–26, 2011
Authorized for Public Release
Appendix 4: Materials used by Ms. Zickler
265 of 282
Authorized for Public Release
January 25–26, 2011
Class I FOMC – Restricted Controlled (FR)
Material for Briefing on
FOMC Participants’ Economic Projections
Joyce Zickler
January 25, 2011
Page 1 of 4
266 of 282
January 25–26, 2011
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Exhibit 1. Central tendencies and ranges of economic projections, 2011–13 and over the longer run
Percent
Change in real GDP
5
Central tendency of projections
Range of projections
Tealbook forecast
4
3
2
1
+
0
_
1
Actual
2
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
Unemployment rate
10
9
8
7
6
5
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
PCE inflation
3
2
1
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
Core PCE inflation
3
2
1
2006
2007
2008
2009
2010
Page 2 of 4
2011
2012
2013
January 25–26, 2011
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Class I FOMC - Restricted Controlled (FR)
268 of 282
Exhibit 2. Economic projections for 2011-2013 and over the longer run (percent)
Change in real GDP
2011
2012
Central Tendency
November projections
Range
November projections
Memo: Tealbook
November Tealbook
November projections
Range
November projections
Memo: Tealbook
November Tealbook
3.5 to 4.4
3.6 to 4.5
3.7 to 4.6
3.5 to 4.6
2.5 to 2.8
2.5 to 2.8
3.2 to 4.2
2.5 to 4.0
3.4 to 4.5
2.6 to 4.7
3.0 to 5.0
3.0 to 5.0
2.4 to 3.0
2.4 to 3.0
3.8
4.4
4.6
3.0
3.6
4.7
4.7
2.8
2013
Longer run
November projections
Range
November projections
Memo: Tealbook
November Tealbook
7.6 to 8.1
7.7 to 8.2
6.8 to 7.2
6.9 to 7.4
5.0 to 6.0
5.0 to 6.0
8.4 to 9.0
8.2 to 9.3
7.2 to 8.4
7.0 to 8.7
6.0 to 7.9
5.9 to 7.9
5.0 to 6.2
5.0 to 6.3
8.9
7.8
7.0
5.2
9.0
7.9
7.1
5.2
2013
Longer run
November projections
Range
November projections
Memo: Tealbook
November Tealbook
PCE inflation
2012
1.3 to 1.7
1.1 to 1.7
1.0 to 1.9
1.1 to 1.8
1.2 to 2.0
1.2 to 2.0
1.6 to 2.0
1.6 to 2.0
1.0 to 2.0
0.9 to 2.2
0.7 to 2.2
0.6 to 2.2
0.6 to 2.0
0.4 to 2.0
1.5 to 2.0
1.5 to 2.0
1.3
1.0
1.2
2.0
1.1
1.1
1.2
2.0
2011
Central Tendency
Unemployment rate
2012
8.8 to 9.0
8.9 to 9.1
2011
Central Tendency
Longer run
3.4 to 3.9
3.0 to 3.6
2011
Central Tendency
2013
Core PCE inflation
2012
2013
1.0 to 1.3
0.9 to 1.6
1.0 to 1.5
1.0 to 1.6
1.2 to 2.0
1.1 to 2.0
0.7 to 1.8
0.7 to 2.0
0.6 to 2.0
0.6 to 2.0
0.6 to 2.0
0.5 to 2.0
1.0
1.0
1.2
1.0
1.0
1.2
NOTE: The changes in real GDP and inflation are measured Q4/Q4
Page 3 of 4
January 25–26, 2011
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Class I FOMC - Restricted Controlled (FR)
269 of 282
Exhibit 3. Risks and uncertainty in economic projections
Number of participants
Number of participants
Risks to GDP growth
Uncertainty about GDP growth
January projections
November projections
January projections
November projections
18
18
16
14
12
10
10
8
8
6
6
4
4
2
Similar
14
12
Lower
16
2
Downside
Higher
Balanced
Number of participants
Upside
Number of participants
Uncertainty about PCE inflation
Risks to PCE inflation
18
16
14
12
12
10
10
8
8
6
6
4
4
2
Similar
16
14
Lower
18
2
Higher
Downside
Page 4 of 4
Balanced
Upside
January 25–26, 2011
Authorized for Public Release
Appendix 5: Materials used by Mr. Stockton
270 of 282
Authorized for Public Release
January 25–26, 2011
271 of 282
The Market for New Single-Family Homes
2010
2010
Sales1
Total
Previous
Percent Change
Q2
321
335
-14.4
By region
Northeast
Midwest
South
West
Inventories
New homes for sale2
Months’ supply3
2010
Q3
Q4
Oct.
31
44
173
73
Dec.
1.7
280
275
-11.7
280
290
.0
17.5
31
42
159
59
23
34
165
74
30
40
161
49
20
31
165
64
19
32
168
110
211
7.9
202
8.5
190
8.0
200
8.6
195
8.4
190
6.9
271.6
.3
264.2
-1.9
253.8
-7.6
n.a.
n.a.
253.4
-5.2
278.6
3.4
293.7
4.3
.3
-20.9
-14.9
n.a.
-5.8
9.9
5.4
-.4
-1.1
-.1
-1.2
n.a.
n.a.
n.a.
-.4
Constant-quality price index6
Year-to-year percent change5
One-period percent change
(annual rate for quarters)
33
47
180
76
190
8.0
Prices
Mean (thousands of dollars)4
Year-to-year percent change5
One-period percent change
(annual rate for quarters,
monthly rate for months)
296
-6.9
291
288
-13.1
Nov.
329
-9.7
.7
3.8
n.a.
n.a.
n.a.
1. Thousands of units, s.a.a.r., except where noted. Percent change is from previous comparable period, not at an annual rate.
2. Thousands of units, seasonally adjusted, end of period stock.
3. At current sales rate; expressed as the ratio of s.a. inventories to s.a. sales. Quarterly and annual values are averages of
monthly values.
4. Quarterly and annual values of mean prices are equal to a weighted average of monthly data; the weights are based on the
response rate to the survey in each month. Seasonally adjusted by FRB staff.
5. Year-to-year percent changes are from the year-earlier comparable period.
6. Based on characteristics of new homes sold in 2005. Seasonally adjusted by FRB staff.
s.a.a.r. Seasonally adjusted annual rate. s.a. Seasonally adjusted. n.a. Not available.
Source: Census Bureau.
Inventories of New Homes
and Months’ Supply
1.6
Millions of units
New Home Sales
1.6
Number of months
Thousands of units
13
650
Inventories of new homes (left scale)
12
600
Months’ supply (right scale)
11
550
10
500
9
450
8
1.4
1.4
1.2
1.2
1.0
1.0
.8
.8
400
7
.6
.6
350
6
.4
.4
5
300
.2
.2
.0
.0
1998
2000
2002
2004
Source: Census Bureau.
2006
2008
2010
4
250
Dec.
200
150
3
Dec.
2
1
2002
2004
2006
2008
2010
Note: Months’ supply is calculated using the 3-month moving
average of sales.
Source: Census Bureau.
January 25–26, 2011
Authorized for Public Release
Appendix 6: Materials used by Mr. English
272 of 282
Authorized for Public Release
January 25–26, 2011
273 of 282
Class I FOMC – Restricted Controlled (FR)
Material for
FOMC Briefing on Monetary Policy Alternatives
Bill English
January 26, 2011
Authorized for Public Release
January 25–26, 2011
274 of 282
Class I FOMC – Restricted Controlled (FR)
DECEMBER FOMC STATEMENT
1. Information received since the Federal Open Market Committee met in November confirms
that the economic recovery is continuing, though at a rate that has been insufficient to bring
down unemployment. Household spending is increasing at a moderate pace, but remains
constrained by high unemployment, modest income growth, lower housing wealth, and tight
credit. Business spending on equipment and software is rising, though less rapidly than
earlier in the year, while investment in nonresidential structures continues to be weak.
Employers remain reluctant to add to payrolls. The housing sector continues to be depressed.
Longer-term inflation expectations have remained stable, but measures of underlying
inflation have continued to trend downward.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. Currently, the unemployment rate is elevated, and measures of
underlying inflation are somewhat low, relative to levels that the Committee judges to be
consistent, over the longer run, with its dual mandate. Although the Committee anticipates a
gradual return to higher levels of resource utilization in a context of price stability, progress
toward its objectives has been disappointingly slow.
3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time,
is at levels consistent with its mandate, the Committee decided today to continue expanding
its holdings of securities as announced in November. The Committee will maintain its
existing policy of reinvesting principal payments from its securities holdings. In addition,
the Committee intends to purchase $600 billion of longer-term Treasury securities by the end
of the second quarter of 2011, a pace of about $75 billion per month. The Committee will
regularly review the pace of its securities purchases and the overall size of the asset-purchase
program in light of incoming information and will adjust the program as needed to best foster
maximum employment and price stability.
4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and
continues to anticipate that economic conditions, including low rates of resource utilization,
subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally
low levels for the federal funds rate for an extended period.
5. The Committee will continue to monitor the economic outlook and financial developments
and will employ its policy tools as necessary to support the economic recovery and to help
ensure that inflation, over time, is at levels consistent with its mandate.
Page 1 of 9
Authorized for Public Release
January 25–26, 2011
275 of 282
Class I FOMC – Restricted Controlled (FR)
JANUARY FOMC STATEMENT—ALTERNATIVE A
1. Information received since the Federal Open Market Committee met in November
December confirms that the economic recovery is continuing, though at a rate that has been
insufficient to bring down unemployment about a significant improvement in labor
market conditions. Household spending is increasing at a moderate pace, but remains
constrained by high unemployment, modest income growth, lower housing wealth, and tight
credit. Business spending on equipment and software is rising, though less rapidly than
earlier in the year in recent quarters, while investment in nonresidential structures continues
to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to
be depressed. Longer-term inflation expectations have remained stable, but measures of
underlying inflation have continued to been trending downward.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. Currently, the unemployment rate is elevated, and measures of
underlying inflation are somewhat low, relative to levels that the Committee judges to be
consistent, over the longer run, with its dual mandate. Although the Committee anticipates a
gradual return to higher levels of resource utilization in a context of price stability, progress
toward its objectives has been remains disappointingly slow and there are still significant
downside risks to the economic outlook.
3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time,
is at levels consistent with its mandate, the Committee decided today to continue expanding
its holdings of securities. as announced in November. Moreover, in light of incoming
information, the Committee now intends to increase its holdings of securities by a total
of $800 billion—$200 billion more than announced in November—by purchasing
longer-term Treasury securities at a pace of about $75 billion per month through the
third quarter of 2011. In addition, the Committee will maintain its existing policy of
reinvesting principal payments from its securities holdings. In addition, the Committee
intends to purchase $600 billion of longer-term Treasury securities by the end of the second
quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review
the pace of its securities purchases and the overall size of the asset-purchase program in light
of incoming information and will adjust the program as needed to best foster maximum
employment and price stability.
4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and
continues to currently anticipates that economic conditions, including low rates of resource
utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant
exceptionally low levels for the federal funds rate for an extended period at least through
mid-2012.
5. The Committee will continue to monitor the economic outlook and financial developments
and will employ its policy tools as necessary to support the economic recovery and to help
ensure that inflation, over time, is at levels consistent with its mandate.
Page 2 of 9
January 25–26, 2011
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276 of 282
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JANUARY FOMC STATEMENT—ALTERNATIVE B
1. Information received since the Federal Open Market Committee met in November
December confirms that the economic recovery is continuing, though at a rate that has been
insufficient to bring down unemployment about a significant improvement in labor
market conditions. Growth in household spending is increasing at a moderate pace picked
up late last year, but remains constrained by high unemployment, modest income growth,
lower housing wealth, and tight credit. Business spending on equipment and software is
rising, though less rapidly than earlier in the year, while investment in nonresidential
structures continues to be is still weak. Employers remain reluctant to add to payrolls. The
housing sector continues to be depressed. Although commodity prices have risen, longerterm inflation expectations have remained stable, but and measures of underlying inflation
have been trending downward.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. Currently, the unemployment rate is elevated, and measures of
underlying inflation are somewhat low, relative to levels that the Committee judges to be
consistent, over the longer run, with its dual mandate. Although the Committee anticipates a
gradual return to higher levels of resource utilization in the context of price stability, progress
toward its objectives has been disappointingly slow.
3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time,
is at levels consistent with its mandate, the Committee decided today to continue expanding
its holdings of securities as announced in November. In particular, the Committee will is
maintaining its existing policy of reinvesting principal payments from its securities holdings.
In addition, the Committee and intends to purchase $600 billion of longer-term Treasury
securities by the end of the second quarter of 2011, a pace of about $75 billion per month [,
which, given the quantity of purchases thus far, implies a pace of about $80 billion per
month]. [The Committee will regularly review the pace of its securities purchases and the
overall size of the asset-purchase program in light of incoming information and will adjust
the program as needed to best foster maximum employment and price stability. | The
Committee will continued its practice of regularly reviewing the pace of its securities
purchases and the overall size of the asset-purchase program in light of incoming
information, and will it remains prepared to adjust the program as needed to best foster
maximum employment and price stability.]
4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and
continues to anticipate that economic conditions, including low rates of resource utilization,
subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally
low levels for the federal funds rate for an extended period.
5. The Committee will continue to monitor the economic outlook and financial developments
and will employ its policy tools as necessary to support the economic recovery and to help
ensure that inflation, over time, is at levels consistent with its mandate.
Page 3 of 9
January 25–26, 2011
Authorized for Public Release
277 of 282
Class I FOMC – Restricted Controlled (FR)
JANUARY FOMC STATEMENT—ALTERNATIVE C
1. Information received since the Federal Open Market Committee met in November
December confirms that the economic recovery is continuing, though at a rate that has been
insufficient to bring down unemployment about a significant improvement in labor
market conditions. Growth in household spending is increasing at a moderate pace has
picked up but remains constrained by high unemployment, modest income growth, lower
housing wealth, and tight credit. Business spending on equipment and software is rising,
though less rapidly than earlier in the year, while investment in nonresidential structures
continues to be weak. and business investment is rising. However, employers remain
reluctant to add to payrolls and the housing sector continues to be depressed. Although
commodity prices have risen, longer-term inflation expectations have remained stable, but
and measures of underlying inflation have been trending downward.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. Currently, the unemployment rate is elevated, and measures of underlying
inflation are somewhat low, relative to levels that the Committee judges to be consistent,
over the longer run, with its dual mandate. Although the Committee anticipates a gradual
return to higher levels of resource utilization in a context of price stability, Progress toward
the Committee’s objectives has been disappointingly slow, but there are some indications
that the economic recovery is strengthening.
3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time,
is at levels consistent with its mandate, the Committee decided today to continue expanding
its holdings of securities. as announced in November. However, in light of incoming
information, the Committee now intends to increase its holdings of securities by a total
of $400 billion—$200 billion less than announced in November—by purchasing longerterm Treasury securities at a pace of about $40 billion per month through the second
quarter of 2011. The Committee will maintain its existing policy of reinvesting principal
payments from its securities holdings. In addition, the Committee intends to purchase $600
billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of
about $75 billion per month. The Committee will regularly review the pace of its securities
purchases and the overall size of the asset-purchase program in light of incoming information
and will adjust the program as needed to best foster maximum employment and price
stability.
4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and
continues to anticipate that economic conditions, including low rates of resource utilization,
subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally
low levels for the federal funds rate for an extended period.
5. The Committee will continue to monitor the economic outlook and financial developments
and will employ its policy tools as necessary to support the economic recovery and to help
ensure that inflation, over time, is at levels [of 2 percent or a bit less, which the Committee
judges to be] consistent with its mandate.
Page 4 of 9
January 25–26, 2011
Authorized for Public Release
278 of 282
Class I FOMC – Restricted Controlled (FR)
JANUARY FOMC STATEMENT—ALTERNATIVE D
1. Information received since the Federal Open Market Committee met in November
December confirms that the economic recovery is continuing. though at a rate that has been
insufficient to bring down unemployment. Growth in household spending is increasing at a
moderate pace has picked up but remains constrained by high unemployment, modest
income growth, lower housing wealth, and tight credit. Business spending on equipment and
software is rising, though less rapidly than earlier in the year, while investment in
nonresidential structures continues to be weak. Employers remain reluctant to add to
payrolls. The housing sector continues to be depressed. and business investment is rising.
Measures of underlying inflation have trended lower in recent quarters and longer-term
inflation expectations have remained stable, but measures of underlying inflation have
continued to trend downward. commodity prices have risen noticeably.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. Currently, the unemployment rate is elevated, and measures of
underlying inflation are somewhat low, relative to levels that the Committee judges to be
consistent, over the longer run, with its dual mandate. Although the Committee anticipates a
gradual return to higher levels of resource utilization in a context of price stability, progress
toward its objectives has been disappointingly slow.
2. To promote a stronger pace of support the economic recovery and to help ensure that
inflation, over time, is at levels consistent with its mandate, the Committee will maintain
the target range for the federal funds rate at 0 to ¼ percent and anticipates that
economic conditions are likely to warrant low levels for the federal funds rate for some
time. However, the Committee judges that a further expansion of its securities holdings
is not necessary to support a gradual return to higher levels of resource utilization in a
context of price stability. Accordingly, the Committee decided today to continue
expanding discontinue the asset purchase program it its holdings of securities as
announced in November. For the time being, the Committee will maintain its existing
policy of reinvesting principal payments from its securities holdings. In addition, the
Committee intends to purchase $600 billion of longer-term Treasury securities by the end of
the second quarter of 2011, a pace of about $75 billion per month. The Committee will
regularly review the pace of its securities purchases and the overall size of the asset-purchase
program in light of incoming information and will adjust the program as needed to best foster
maximum employment and price stability.
3. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and
continues to anticipate that economic conditions, including low rates of resource utilization,
subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally
low levels for the federal funds rate for an extended period.
3. The Committee will continue to monitor the economic outlook and financial developments
and will employ its policy tools as necessary to support the economic recovery and to help
ensure that inflation, over time, is at levels consistent with its mandate promote maximum
employment and price stability.
Page 5 of 9
Authorized for Public Release
January 25–26, 2011
279 of 282
Class I FOMC – Restricted Controlled (FR)
January 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 long-run
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 execute purchases of
longer-term Treasury securities in order to increase the total face value of domestic securities
held in the System Open Market Account to approximately $2.6 $2.8 trillion by the end of June
September 2011. The Committee also directs the Desk to reinvest principal payments from
agency debt and agency mortgage-backed securities in longer-term Treasury securities. 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.
Page 6 of 9
Authorized for Public Release
January 25–26, 2011
280 of 282
Class I FOMC – Restricted Controlled (FR)
January 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 long-run
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 execute purchases of
longer-term Treasury securities in order to increase the total face value of domestic securities
held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011.
The Committee also directs the Desk to reinvest principal payments from agency debt and
agency mortgage-backed securities in longer-term Treasury securities. 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.
Page 7 of 9
Authorized for Public Release
January 25–26, 2011
281 of 282
Class I FOMC – Restricted Controlled (FR)
January 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 long-run
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 execute purchases of
longer-term Treasury securities in order to increase the total face value of domestic securities
held in the System Open Market Account to approximately $2.6 $2.4 trillion by the end of June
2011. The Committee also directs the Desk to reinvest principal payments from agency debt and
agency mortgage-backed securities in longer-term Treasury securities. 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.
Page 8 of 9
January 25–26, 2011
Authorized for Public Release
282 of 282
Class I FOMC – Restricted Controlled (FR)
January 2011 FOMC Directive — Alternative D
The Federal Open Market Committee seeks monetary and financial conditions that will
foster price stability and promote sustainable growth in output. To further its long-run
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 execute purchases of
longer-term Treasury securities in order to increase maintain the total face value of domestic
securities held in the System Open Market Account to at approximately $2.6 $2.2 trillion by the
end of June 2011. The Committee also directs the Desk to by reinvesting principal payments
from agency debt and agency mortgage-backed securities in longer-term Treasury securities.
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.
Page 9 of 9
@FedFRASER