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January 26–27, 2010 Authorized for Public Release Appendix 1: Materials used by Mr. Sack 213 of 260 January 26–27, 2010 Authorized for Public Release Material for FOMC Presentation: Financial Market Developments and Desk Operations Brian Sack January 26, 2010 214 of 260 January 26–27, 2010 Authorized for Public Release 215 of 260 Class II FOMC – Restricted FR Indexed to 100= 8/1/08 Exhibit 1 Indexed to 100= 8/1/08 (1) US Equity Prices (S&P 500) (2) VIX Index 400 110 FOMC 100 FOMC 350 300 90 250 80 200 70 150 60 100 50 50 08/01/08 12/01/08 04/01/09 08/01/09 08/01/08 12/01/09 04/01/09 08/01/09 12/01/09 Source: Bloomberg Source: Bloomberg (3) Corporate Debt Spreads BPS 12/01/08 2250 FOMC 1100 2000 900 800 (4) High Yield Corporate Bond Risk Premium BPS BPS 900 700 1750 600 1500 500 1250 500 400 1000 300 300 200 750 High Yield (RHS) 500 Investment Grade (LHS) 100 08/01/08 250 12/01/08 04/01/09 08/01/09 12/01/09 (5) CMBS Spreads Junior 100 -100 03/31/97 03/31/00 03/31/03 03/31/06 03/31/09 Source: Federal Reserve Bank of New York Source: Bank of America BPS 700 Mezzanine Super Senior 3500 Indexed to 100= 8/1/08 (6) US Equity Indices for Financial Firms 140 Large Bank Index 3000 FOMC 120 FOMC Regional Bank Index 2500 100 2000 80 1500 1000 60 500 40 0 08/01/08 20 12/01/08 Source: JP Morgan Chase 04/01/09 08/01/09 12/01/09 08/01/08 12/01/08 04/01/09 08/01/09 12/01/09 Source: Bloomberg, Federal Reserve Bank of New York January 26–27, 2010 Authorized for Public Release 216 of 260 Class II FOMC – Restricted FR Percent Exhibit 2 (7) Implied Federal Funds Rate 3.0 (8) Treasury Yields Percent 4.5 2-Year 5-Year 10-Year 2.5 1/22/10 12/15/09 FOMC 3.5 2.0 1.5 2.5 1.0 1.5 0.5 0.0 0.5 02/01/10 08/01/10 02/01/11 08/01/11 08/01/08 Source: Federal Reserve Bank of New York Annual BPS 04/01/09 08/01/09 12/01/09 Source: Bloomberg (9) Premium for Skew toward Higher Long Rates* 35 12/01/08 30 (10) 5-Year 5-Year Forward Breakeven Rates Percent 5 4 25 3 20 15 2 10 5 1 Barclays Board of Governors 0 0 -5 08/01/03 08/01/05 08/01/07 08/01/09 *3-month, 10-year payer skew; 100 bps out-of-the-money puts less at-the-money options 01/01/02 01/01/04 01/01/06 01/01/08 01/01/10 Source: Federal Reserve Board of Governors, Barclays Capital Source: JP Morgan Chase $ Billions 2500 (11) 5-Year 5-Year Forward Breakeven Statistics* Barclays Board of Governors Current Level 2.77 3.06 Pre-Crisis Range 1.63-2.88 2.31-3.36 Percent Rank 98.2 89.2 *Pre-crisis range is January 2002 – July 2007 (12) Gross Treasury Coupon Issuance 2000 1500 TIPS Nominal Coupons 1995 1998 1000 500 Source: Barclays Capital, Federal Reserve Board of Governors 0 1992 2001 2004 *Projected Source: US Treasury, Wrightson ICAP 2007 2010* January 26–27, 2010 Authorized for Public Release 217 of 260 Class II FOMC – Restricted FR Exhibit 3 (13) Weekly Pace of MBS Purchases (14) Weekly Pace of Agency Debt Purchases $ Billions 35 $ Billions Actual* Projected Path at Last FOMC 5 Actual* Projected Path at Last FOMC 30 4 25 3 20 15 2 10 1 5 0 12/31/08 0 03/31/09 06/30/09 09/30/09 12/31/09 03/31/10 12/31/08 03/31/09 06/30/09 09/30/09 *Monthly average Source: Federal Reserve Bank of New York 12/31/09 03/31/10 *Monthly average Source: Federal Reserve Bank of New York (15) MBS Spreads* BPS 175 150 125 100 75 50 25 0 -25 -50 BPS OAS to Treasury OAS to Swap 08/01/00 08/01/03 08/01/06 (16) Agency Debt Spread* 175 150 125 100 75 50 25 0 -25 -50 08/01/09 08/01/00 08/01/03 08/01/06 * Fannie Mae fixed-rate current coupon spreads *Fannie Mae 5-year benchmark spread to Treasury Source: Barclays Capital 08/01/09 Source: JP Morgan Chase $ Billions (17) MBS Fails 900 $ Billions (18) Dollar Roll Sales 20 800 700 15 600 500 10 400 300 5 200 100 0 0 01/01/02 01/01/04 Source: FR2004 01/01/06 01/01/08 01/01/10 06/01/09 07/01/09 09/14/09 10/26/09 Source: Federal Reserve Bank of New York 01/07/10 January 26–27, 2010 Authorized for Public Release 218 of 260 Class II FOMC – Restricted FR $ Billions 1750 Exhibit 4 (20) Liquidity Facility Usage (19) Federal Reserve Short-Term Liquidity Facilities Current Peak Peak (Levels in $ Billions) Outstanding Outstanding Date TSLF 0 223 12/4/08 PDCF 0 156 9/29/08 AMLF 0 152 10/1/08 CPFF 3.9 351 1/23/09 FX Swaps 0.2 586 12/4/08 PCF 14.9 114 10/28/08 TAF 38.5 493 3/11/09 TSLF 1500 PDCF AMLF 1250 CPFF FX Swaps 1000 PCF 750 TAF 500 Source: Federal Reserve Bank of New York, Federal Reserve Board of Governors 250 0 08/01/08 12/01/08 04/01/09 08/01/09 12/01/09 Source: Federal Reserve Bank of New York BPS (22) Balance Sheet Assets by Category (21) Money Market Rates $ Billions 400 3000 350 3M Financial CP-OIS 300 3M LIBOR-OIS All Other Lending to Systemically Important Institutions Short-Term Liquidity Facilities Outright Asset Holdings 2500 2000 250 200 1500 FOMC 150 1000 100 50 500 0 0 08/01/08 12/01/08 04/01/09 08/01/09 12/01/09 Source: Bloomberg, Federal Reserve Board of Governors 08/01/08 12/01/08 04/01/09 08/01/09 12/01/09 Source: Federal Reserve Bank of New York (23) Expected Use of Exit Tools Relative to First Target Rate Increase (% of Respondents) (24) Expected Timing of Exit Tools Trimmed Mean 25th Percentile 75 Percentile RRP Before Concurrent After Never RRP 73 23 4 0 TDF 70 23 5 2 IOER 15 75 10 0 Tsy Sales Tsy Sales 6 0 60 34 Agy Sales Agy Sales 6 0 60 34 MBS Sales MBS Sales 4 2 60 34 TDF Source: Federal Reserve Bank of New York Exit Survey IOER -4 -2 0 2 4 6 8 10 12 14 FOMC Meetings Relative to First Target Rate Increase Source: Federal Reserve Bank of New York Exit Survey January 26–27, 2010 Authorized for Public Release 219 of 260 Class II FOMC – Restricted FR Exhibit 5 (25) Cumulative Size of Exit Programs $ Billions $ Billions 300 600 RRP TDF Tsy Sales Agy Sales MBS Sales 250 200 Trimmed Mean 25th Perc 75th Perc 500 400 150 300 100 200 50 100 0 (26) Estimated Maximum Usage Over 6 Week Period 0 Q2 2010 Q2 2011 RRP Q2 2012 Source: Federal Reserve Bank of New York Exit Survey Percent 100 (27) Probability of Reinvestment of Maturing Securities Treasury Agency Debt MBS 75 TDF RRP & TDF Source: Federal Reserve Bank of New York Exit Survey (28) Expected Level of Reserves at First Tightening Percent 25 20 15 50 10 25 5 0 0 No Reinvestment Partial Reinvestment Full Reinvestment Source: Federal Reserve Bank of New York Exit Survey Percent 100 (29) Expected Impact of Reverse Repos and Term Deposit Facility ≤100 101- 201- 301- 401- 501- 601- 701- 801- 901- ≥1001 200 300 400 500 600 700 800 900 1000 $ Billions Source: Federal Reserve Bank of New York Exit Survey (30) Spread between Implied IOER and Federal Funds Effective Rate (in BPS)* Agree Disagree Level of Excess Reserves 75 $1 Trillion IOER Rate 50 25 BPS 100 BPS 200 BPS $500 Billion $0 - $25 Billion 10 5-7 0 15-29 10-20 0 20-50 10-25 0 25 *Includes 25th to 75th percentile of responses Source: Federal Reserve Bank of New York Exit Survey 0 Improve Control of Rates Reduce Lending Reduce Inflation Expectations Source: Federal Reserve Bank of New York Exit Survey January 26–27, 2010 Authorized for Public Release Appendix 2: Materials used by Messrs. Clouse and Hilton 220 of 260 January 26–27, 2010 Authorized for Public Release Class I FOMC– Restricted Controlled (FR) Material for Briefing on Strategies for the Removal of Policy Accommodation Jim Clouse Spence Hilton y , January 26, 2010 221 of 260 January 26–27, 2010 January 26, 2010 Authorized for Public Release Class I FOMC -- Restricted Controlled (FR) 222 of 260 1 of 9 Update on Reserve Draining Tools Update on Reserve‐Draining Tools • • • • • Capability to conduct RRP with MBS anticipated in late March. Capability to conduct RRP with expanded counterparties anticipated in late spring. TDF – Public comments due February 1 – Board could issue final rule in March – Facility could be fully operational in May Capability to conduct term RRP with foreign accounts may be available in July. Reserve Collateral Accounts (RCAs) – Steering group being assembled to develop work plans. January 26–27, 2010 Authorized for Public Release January 26, 2010 223 of 260 Class I FOMC -- Restricted Controlled (FR) 2 of 9 Hypothetical Use of Draining Tools Hypothetical Use of Draining Tools Reserve Balances With Alternative Assumptions About Reserve Draining Tools ($ Billions) March April A il May June July August September October November December No Tools 1269 1172 1252 1205 1194 1179 1163 1149 1135 1122 RRP 1249 1112 1132 1020 949 874 758 644 630 617 RRP + TDF 1249 1112 1057 870 724 574 408 294 280 267 RRP + TDF + Foreign RRP 1249 1112 1057 870 674 474 308 194 180 167 See “Projections of System Capacity to Absorb Reserve Balances,” by Chris Burke, Seth Carpenter, and Jane Ihrig Ch i k S hC d hi Assumed Paths for Tools RRP 20 60 120 185 245 305 405 505 505 505 TDF 0 0 75 150 225 300 350 350 350 350 Foreign RRP 0 0 0 0 50 100 100 100 100 100 January 26–27, 2010 January 26, 2010 Authorized for Public Release 224 of 260 Class I FOMC -- Restricted Controlled (FR) 3 of 9 Funds Rate and Reserve Demand Funds Rate and Reserve Demand What quantity of reserves must be drained to align funds rate and IOER? How ill f d t H will funds rate respond to increase in IOER? dt i i IOER? Spread of IOER Rate Over Funds Rate with Alternative Assumptions Regarding the Level of IOER and Excess Balances(Basis Points) Level of Excess Reserves ($ Billions) O ( e e ) IOER (Percent) 1000 000 500 25 5 0.25 10 6 ‐1 1.00 30 17 ‐3 2.00 44 26 ‐3 See “Exit Strategy Survey: Themes and Messages,” by Mike McMorrow, Ellen Correia, and Mike Lementowski See “Reserves and the Federal Funds Rate,” by Gara Afonso, Chris Burke, Seth Carpenter, Jane Ihrig, Dennis Kuo, James McAndrews, John McGowan, Asani Sarkar, Jeffrey Shrader, David Skeie, and Victor Stebunovs. January 26–27, 2010 Authorized for Public Release January 26, 2010 Class I FOMC -- Restricted Controlled (FR) 225 of 260 Alternative Target Rates Alternative Target Rates • In some scenarios, linkage of federal funds rate to other short‐term rates could be loosened. could be loosened. – But apparently not so far. • Alternative market rates include… – Libor, eurodollar, repo rates – Institutional factors could affect Institutional factors could affect choice – Response of rates to shocks could differ • IOER rate could be used as primary IOER rate could be used as primary policy instrument – Monitor a collection of money market rates (similar to BoE). – Still questions about connection between IOER and market rates between IOER and market rates – Governance issues in determination of IOER rate See “Alternative Interest Rate Operating Targets,” by Tobias Adrian, Haley Boesky, David Bowman, Chris Burke, Seth Carpenter, Margaret DeBoer, Michiel DePooter, Spence Hilton, Jane Ihrig, Mike Leahy, James McAndrews, Steve Meyer, Edward Nelson, Michael Palumbo, Roberto Perli, and Matthew Raskin. 4 of 9 January 26–27, 2010 January 26, 2010 Authorized for Public Release Class I FOMC -- Restricted Controlled (FR) 226 of 260 5 of 9 Foreign Experience with Interest on Reserves • Most policy rate floors are effective – B But somewhat less so in United Kingdom h l i U i d Ki d – Foreign experience (like U.S. experience) indicates that effectiveness of floor depends on scope of access to central bank accounts • Central banks with “floor systems” have been able to tighten policy by raising IOER or deposit rate even with substantial excess reserves. – Norges Bank has tightened policy with high reserves Norges Bank has tightened policy with high reserves. • Caveat – Experience in other countries may be an imperfect guide to likely Experience in other countries may be an imperfect guide to likely outcomes in the United States. See “Interest on Excess Reserves as a Monetary Policy Instrument: The Experience of Foreign Central Banks,” by David Bowman, Etienne Gagnon, and Mike Leahy. January 26–27, 2010 January 26, 2010 Authorized for Public Release Class I FOMC -- Restricted Controlled (FR) Long‐Run Balance Sheet Management Issues • • • Long‐run policy implementation framework – Move away from mandatory reserve requirements? – Adopt corridor or floor system? Adopt corridor or floor system? Long‐run size of the balance sheet – Could be used actively to pursue macro objectives Long‐run composition of the balance sheet ii f h b l h – Return to Treasuries only? – Shorten average maturity to increase liquidity? See “Balance Sheet Management Issues in the Longer Term,” by Jim Clouse, Spence Hilton, and Steve Meyer. 227 of 260 6 of 9 January 26–27, 2010 Authorized for Public Release January 26, 2010 228 of 260 Class I FOMC -- Restricted Controlled (FR) 7 of 9 Asset Sales Strategies Asset Sales Strategies SOMA Assets Agency MBS Agency Debt Treasury Debt Memo: Reserves Domestic SOMA Assets and Reserves (billions of dollars) Levels Potential for Cumulative Redemptions, from 2010-Q2 2007-Q2 2010-Q2 2010-Q4 2011-Q4 2012-Q4 2013-Q4 2014-Q4 2015-Q4 0 1,135 ‐45 ‐120 ‐185 ‐245 ‐300 ‐365 0 170 ‐20 ‐60 ‐85 ‐105 ‐125 ‐130 791 775 ‐85 ‐155 ‐290 ‐345 ‐415 ‐440 17 1,260 Motivations for SOMA Asset Sales and Redemptions Reduce Excess Reserves ‐ Reduce Excess Reserves ‐ Unwind Portfolio Balance Effects on Longer Term Rates ‐ Rebalance the SOMA Portfolio Risks of Aggressive Asset Sales Uncertainty about Rate Effects of Asset Sales ‐ Uncertainty about Rate Effects of Asset Sales ‐ Announcement Effect Could Cause an Immediate, Sharp Rise in Long‐Term Interest Rates ‐ Possible Impact on Market Liquidity and Function ‐ Potential for Sizable Capital Losses Federal Reserve Balance Sheet Assets under Alternative SOMA Reduction Strategies (from “Strategies for Asset Sales and Redemptions,” Keane, Lucca, Remache, and Sack) 2010:Q2 2010:Q4 2011:Q4 2012:Q4 2013:Q4 2014:Q4 2015:Q4 2,346 2 346 1,666 1 666 1,040 1 040 1,096 1 096 1,153 1 153 1,215 1 215 1,266 1 266 Rapid Rapid Asset Sales 1 Redemptions Only2 2,346 2,256 2,111 1,969 1,877 1,775 1,703 Steady and Gradual Reduction3 2,346 2,097 1,850 1,581 1,351 1,215 1,266 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ State‐dependent Reduction 4 January 26–27, 2010 Authorized for Public Release January 26, 2010 229 of 260 Class I FOMC -- Restricted Controlled (FR) 8 of 9 Alternative Sequencing Strategies Alternative Sequencing Strategies Alternative Sequencing Strategies (from “Strategies for Sequencing the Use of Reserve Draining Tools and Changes in Policy Rates,” Clouse and Hilton) Potential Benefits Strategy Ex-Post Contingent Reserve Drain Early Reserve D i E l R Drain Concurrent Reserve Drain Allows l t t f h th All a clear test of whether draining tools are necessary, and could avoid their use altogether. Relatively simple communications strategy. i ti t t Reduces risk that funds rate will be volatile or trade below IOER rate when policy is first tightened. Risks/Other Issues Risks Ri k some period i which f d rate i d in hi h funds t could be well below the IOER rate. Potential communication challenges in avoiding impression that increases in IOER and FFT rates may be imminent. Necessarily entails use of temporary reserve draining tools, with a need for clear operating objectives in the pretightening interval. Early reduction in reserve balances could help to contain inflation expectations, either by demonstrating the Fed has welldeveloped exit capabilities or operating through a reserve channel. h l Relatively simple communications strategy. Criteria for Choosing Among Sequencing Strategies – Degree of confidence about using IOER rate by itself to control short‐term rates. – Possibility of other benefits from draining reserves. – Expected time frame for draining significant reserves draining significant reserves without complications. – Communications challenges with early reserve drain strategy. Necessarily entails use of temporary reserve draining tools. May not reduce the risk that the funds rate could trade well below the IOER rate for some period if IOER is not effective and reserve draining tools cannot be ramped up quickly without complications. – Costs and risks of draining operations which could prove unnecessary. January 26–27, 2010 January 26, 2010 Authorized for Public Release Class I FOMC -- Restricted Controlled (FR) 230 of 260 9 of 9 Possible Questions for Committee Discussion of Strategies for Removing Policy Accommodation 1. Over the next year, how should asset sales be used as part of the exit strategy? ‐‐‐ Relatively rapid sales (say, over $200 billion) l l d l ( $ b ll ) ‐‐‐ Very gradual sales over the next year ($0 to $200 billion) ‐‐‐ Redemptions only ‐‐‐ State contingent sales (and/or purchases) 2. 2 How should redemptions of existing SOMA holdings proceed over the next year? How should redemptions of existing SOMA holdings proceed over the next year? ‐‐‐ Redeem all agency and MBS and no Treasuries ‐‐‐ Redeem all agency and MBS and some Treasuries ‐‐‐ Redeem all agency and MBS and all Treasuries ‐‐‐ Redeem some agency and MBS and no Treasuries ‐‐‐ Redeem nothing g 3. How should the use of reverse repos (RRPs) and term deposits (TDs) be sequenced relative to an increase in the IOER rate? ‐‐‐ Use RRPs and TDs only if necessary after an increase in the IOER rate (ex‐post contingent strategy) ‐‐‐ Use RRPs and TDs before an increase in the IOER rate (ex‐ante strategy) ‐‐‐ Use RRPs and TDs concurrent with increase in IOER rate 4. In order to ensure that that increases in the IOER rate provide a sufficient tightening of money market conditions, what volume of reserves (if any) should be drained in advance of the first IOER increase? 5. What structure for the Federal Reserve balance sheet would you favor in the long run? , p ( p p ) ‐‐‐ All Treasuries, spread across all maturities (as in previous practice) ‐‐‐ All Treasuries, but concentrated in bills and short‐term coupons ‐‐‐ Treasuries, agencies, and MBS ‐‐‐ Other: ________ 6. How concerned are you that the characteristics of the federal funds rate as an operating target will deteriorate significantly? Do you see strong advantages in retaining a market interest rate as an operating target? Do you see other interest rates as o see strong ad antages in retaining a market interest rate as an operating target? Do o see other interest rates as particularly suitable replacements for the funds rate as an operating target? 7. Will the Committee need to determine its longer‐run operating framework far in advance in order to implement an effective exit strategy from the current period of extraordinary policy accommodation? January 26–27, 2010 Authorized for Public Release Appendix 3: Materials used by Messrs. Sichel, Palumbo, and Sheets 231 of 260 January 26–27, 2010 Authorized for Public Release CLASS II FOMC - Restricted (FR) Material for Staff Presentation on the Economic Outlook January 26, 2010 232 of 260 January 26–27, 2010 Authorized for Public Release 233 of 260 January 26–27, 2010 Authorized for Public Release 234 of 260 January 26–27, 2010 Authorized for Public Release 235 of 260 January 26–27, 2010 Authorized for Public Release 236 of 260 January 26–27, 2010 Authorized for Public Release 237 of 260 January 26–27, 2010 Authorized for Public Release 238 of 260 January 26–27, 2010 Authorized for Public Release 239 of 260 January 26–27, 2010 Authorized for Public Release 240 of 260 Exhibit 8 Class II FOMC - Restricted (FR) Foreign Growth Outlook Real GDP and Consumer Prices* Commodity Prices Percent change, annual rate 2010p 2009 2011p 120 2. 3. 4. 5. 6. 3.6 3.1 4.1 n.a. 3.6 10.1 1.8 2.5 6.0 4.9 8.6 5.0 3.8 4.9 5.2 8.8 5.0 4.6 4.0 80 0.8 1.3 1.7 -0.6 0.4 2.0 1.8 1.0 0.4 3.2 2.6 2.0 2.1 2.5 3.2 3.2 1.9 2.7 60 3.1 3.8 1.5 12. Total Foreign CPI 2.7 1.8 9.2 10.8 10.0 12.2 5.1 7. Advanced Foreign Economies 8. Japan 9. Euro Area 10. United Kingdom 11. Canada 3.2 2.2 2.0 * GDP aggregates weighted by U.S. goods exports; CPI by U.S. non-oil goods imports. Updated since January Greenbook. China Emerging Asia ex. China* Index, Jun. 2007 = 100 140 Industrial production Dec. 130 100 100 Nonfuel index 80 Oil import price 60 40 40 2008 2009 2010 2011 * Jan 2008 = 100. Latin America Index, Jun. 2007 = 100 Index, Jun. 2007 = 100 140 130 120 Brazilian IP 120 Industrial production 110 100 90 Mexican IP 95 100 90 Exports 85 80 70 2008 70 2009 2007 2008 2009 * Also excludes Hong Kong and Philippines due to data availability. Japan 80 2007 2008 2009 Euro Area Index, Jun. 2007 = 100 Index, Jun. 2007 = 100 110 100 Household spending 100 90 Nov. 80 Industrial production 90 85 60 2009 95 Retail sales 70 2008 105 Nov. Real exports 2007 105 Nov. 90 80 110 100 110 Nov. Exports 2007 120 Q4 4.4 1.5 Emerging Market Economies China Other Emerging Asia Mexico Brazil Dollars per barrel e Q3 1. Total Foreign GDP June Greenbook Index* 80 2007 2008 2009 January 26–27, 2010 Authorized for Public Release 241 of 260 Exhibit 9 Class II FOMC - Restricted (FR) Advanced Foreign Economies (AFEs) Euro area 4 Projected Private Final Demand Growth Japan United Kingdom Canada Percent 4 4 3 3 3 3 2 2 2 2 1 1 1 H2 1 4 H2 0 0 0 0 H2 -1 -1 -1 -1 H2 -2 2009 2010 2011 -2 2009 2011 -2 2009 2010 10-Yr. Govt. Yield Spreads* Gross Debt to GDP Percent 220 2010 Basis points 90 -2 2011 2009 2010 2011 Policy Rates Percent 350 6 United Kingdom Euro area 180 300 70 Canada Greece 200 3 Canada 150 Japan 50 140 4 Ireland 60 160 5 250 80 200 United Kingdom Portugal Italy 40 100 2001 2004 2007 2010 Sources: OECD, staff forecast. Euro area Japan 50 Spain 30 120 2 0 0 Oct Nov Dec * Relative to Germany. Employment* Jan 1 -1 2007 2008 2009 2010 2011 Output per Employed Person Index, 2007:Q1 = 100 Canada Index, 2007:Q1 = 100 104 104 102 100 98 98 96 94 United Kingdom Japan 100 96 Euro area 102 94 United States 92 2007 * Total economy. 2008 2009 92 2007 2008 2009 January 26–27, 2010 Authorized for Public Release 242 of 260 Exhibit 10 Class II FOMC - Restricted (FR) Emerging Market Economies (EMEs) Projected Total Domestic Demand Growth Chinese Domestic Demand Percent change* 40 2009:H2 2010 Percent, annual rate Percent 12 12 35 Fixed-asset investment 30 9 9 6 6 3 3 25 20 15 10 Retail sales volume 5 0 2006 2007 2008 * From year earlier. 0 2009 Korea Taiwan Mexico Brazil Flows to Dedicated EME Funds Billions of USD Equity Price/Expected Earnings Ratio 25 0 Korea Taiwan Mexico Brazil Property Prices Index, Jan. 2006 = 100 35 Hong Kong 20 Equities 30 15 10 China* 25 Singapore 150 140 130 5 Bonds China 20 0 -5 -15 Total emerging Asia -20 2008 2009 18 16 100 Thailand 5 2006 2007 2008 2009 * Based on Shanghai A index. 90 2006 2007 2008 2009 Fiscal Stimulus Chinese Policy and Lending Percent 110 10 -25 2007 Korea 15 -10 120 Billions of RMB Reserve requirements* Percent of GDP 2000 China Korea Mexico Brazil 1500 4 3 2 14 1000 1 Dec. 500 12 0 Change in outstanding loans 10 8 0 -1 -500 2007 * For large banks. 2008 2009 -2 2009 2010 2011 January 26–27, 2010 Authorized for Public Release 243 of 260 Exhibit 11 (Last) Class II FOMC - Restricted (FR) External Sector Selected Exchange Rates Broad Real Dollar Index, Dec. 3 = 100 Index, 2007:Q2 = 100 108 Euro 104 102 106 100 104 Japanese yen June GB 98 102 96 Korean won 94 100 Canadian dollar 92 98 90 96 Dec 88 Jan 2007 2008 2009 2010 2011 Trade in Real Goods and Services Capital Flows Billions of U.S. dollars Foreign private net purchases of U.S. securities 100 60 40 20 U.S. net purchases of foreign securities 0 2011p e Q3 Q4 Growth Rates (percent, a.r.) 1. Exports 17.8 17.3 9.5 9.3 2. Imports 21.3 11.8 8.8 8.3 80 Foreign official flows 2010p 2009 Contribution to Real GDP Growth (percentage points, a.r.) 3. Net Exports -0.8 0.2 -0.2 -0.1 -20 -40 2006 2007 2008 Note: Six-month moving average. 2009 U.S. Exports and Imports Current Account Billions of chained (2005) dollars 2300 -200 Billions of dollars Percent of GDP -2 2100 -300 -3 -400 -4 -500 -5 -600 -6 -700 -7 1300 -800 -8 Imports June GB 1900 1700 1500 Exports 1100 -900 2007 2008 2009 2010 2011 -9 2005 2006 2007 2008 2009 2010 2011 January 26–27, 2010 Authorized for Public Release Appendix 4: Materials used by Mr. Madigan 244 of 260 January 26–27, 2010 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on FOMC Participants’ Economic Projections Brian Madigan January 26-27, 2010 245 of 260 January 26–27, 2010 Authorized for Public Release 246 of 260 Exhibit 1. Central tendencies and ranges of economic projections, 2010–12 and over the longer run Percent Change in real GDP 5 Central tendency of projections Range of projections Greenbook forecast 4 3 Actual 2 1 + 0 _ 1 2 2005 2006 2007 2008 2009 2010 2011 2012 Longer run Percent Unemployment rate 10 9 8 7 6 5 2005 2006 2007 2008 2009 2010 2011 2012 Longer run Percent PCE inflation 3 2 1 2005 2006 2007 2008 2009 2010 2011 2012 Longer run Percent Core PCE inflation 3 2 1 2005 2006 2007 2008 2009 2010 2011 2012 NOTE: Definitions of variables are in the notes to table 1. The data for the actual values of the variables are annual. January 26–27, 2010 Authorized for Public Release 247 of 260 Exhibit 2: Economic Projections for 2010-2012 and Longer Run Real GDP Growth 2010 2011 2012 Longer run Central Tendency November projections 2.8 to 3.5 2.5 to 3.5 3.4 to 4.5 3.4 to 4.5 3.5 to 4.5 3.5 to 4.8 2.5 to 2.8 2.5 to 2.8 Range November projections 2.3 to 4.0 2.0 to 4.0 2.7 to 4.7 2.5 to 4.6 3.0 to 5.0 2.8 to 5.0 2.4 to 3.0 2.4 to 3.0 Memo: Greenbook November Greenbook 3.6 3.4 4.7 4.4 4.5 5.0 2.5 2.5 Unemployment Rate 2010 2011 2012 Longer run Central Tendency November projections 9.5 to 9.7 9.3 to 9.7 8.2 to 8.5 8.2 to 8.6 6.6 to 7.5 6.8 to 7.5 5.0 to 5.2 5.0 to 5.2 Range November projections 8.6 to 10.0 8.6 to 10.2 7.2 to 8.8 7.2 to 8.7 6.1 to 7.6 6.1 to 7.6 4.9 to 6.3 4.8 to 6.3 Memo: Greenbook November Greenbook 9.5 9.5 8.2 8.2 6.1 6.1 5.0 4.8 PCE Inflation 2010 2011 2012 Longer run Central Tendency November projections 1.4 to 1.7 1.3 to 1.6 1.1 to 2.0 1.0 to 1.9 1.3 to 2.0 1.2 to 1.9 1.7 to 2.0 1.7 to 2.0 Range November projections 1.2 to 2.0 1.1 to 2.0 1.0 to 2.4 0.6 to 2.4 0.8 to 2.0 0.2 to 2.3 1.5 to 2.0 1.5 to 2.0 Memo: Greenbook November Greenbook 1.4 1.4 1.1 1.0 1.3 1.2 2.0 2.0 Core PCE Inflation 2010 2011 2012 Central Tendency November projections 1.1 to 1.7 1.0 to 1.5 1.0 to 1.9 1.0 to 1.6 1.2 to 1.9 1.0 to 1.7 Range November projections 0.9 to 2.0 0.9 to 2.0 0.9 to 2.4 0.5 to 2.4 0.8 to 2.0 0.2 to 2.3 Memo: Greenbook November Greenbook 1.2 1.1 1.1 1.0 1.2 1.1 January 26–27, 2010 Authorized for Public Release 248 of 260 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 18 January projections November projections 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 Uncertainty about PCE Inflation Upside Number of participants Risks to PCE Inflation 18 16 12 10 10 8 8 6 6 4 4 2 Higher 14 12 Similar 16 14 Lower 18 2 Downside Balanced Upside January 26–27, 2010 Authorized for Public Release Appendix 5: Materials used by Mr. Stockton 249 of 260 January 26–27, 2010 Authorized for Public Release 250 of 260 The Market for New Single-Family Homes 2009 2009 Sales1 Total Previous Percent Change Q2 2009 Q3 374 372 -22.9 By region Northeast Midwest South West Inventories New homes for sale2 Months’ supply3 Q4 31 54 202 87 373 Nov. Dec. -8.1 408 400 4.3 370 355 -9.3 -7.6 38 60 208 101 34 57 198 84 33 56 224 95 28 73 192 77 40 43 178 81 280 9.4 252 7.7 231 7.6 242 7.1 235 7.6 231 8.1 270.4 -7.6 270.0 -10.3 274.9 -3.8 269.1 -2.3 263.1 -4.2 267.3 -7.1 299.1 10.5 -7.6 15.2 7.4 -8.1 -10.4 1.6 11.9 -4.5 -6.0 -5.9 .3 n.a. n.a. n.a. -4.5 Constant-quality price index6 Year-to-year percent change5 One-period percent change (annual rate for quarters) 27 49 202 93 231 9.1 Prices Mean (thousands of dollars)4 Year-to-year percent change5 One-period percent change (annual rate for quarters, monthly rate for months) 10.1 406 407 9.1 Oct. 342 2.3 -2.6 8.3 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 1.4 1.4 1.2 1.2 1.0 1.0 .8 Number of months Thousands of units 650 13 Inventories of new homes (left scale) 12 600 Months’ supply (right scale) 11 550 10 .8 500 9 8 450 7 400 .6 .6 .4 .4 Dec. .2 .0 .2 1998 2000 2002 Source: Census Bureau. 2004 2006 2008 2010 .0 6 350 5 4 300 3 250 200 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 26–27, 2010 Authorized for Public Release Appendix 6: Materials used by Mr. English 251 of 260 January 26–27, 2010 Authorized for Public Release 252 of 260 Class I FOMC – Restricted-Controlled FR Material for FOMC Briefing on Monetary Policy Alternatives Bill English January 27, 2010 January 26–27, 2010 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 253 of 260 December FOMC Statement Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months. Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales. Financial market conditions have become more supportive of economic growth. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time. 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 of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009. These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth. Page 1 of 8 January 26–27, 2010 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 254 of 260 January FOMC Statement—Alternative A 1. Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and firms remain reluctant to add to payrolls. Recent data indicate that housing activity remains sluggish and the level of foreclosures continues to be elevated. In light of the weakness in labor markets and prospects for a subpar economic recovery, the Committee judges that further monetary stimulus is warranted. 2. Energy prices have risen in recent months, but core inflation has remained low. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time. 3. To provide further support to mortgage lending and housing markets and to promote a more robust economic recovery in a context of price stability, the Committee decided to expand its purchases of agency mortgage-backed securities to a total of $1.5 trillion, up from the previously announced amount of $1.25 trillion; the Committee anticipates that these transactions will be executed by the end of the third quarter. The Federal Reserve is also in the process of purchasing about $175 billion of agency debt, and the Committee anticipates that those transactions will be executed by the end of the first quarter. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. 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 of the federal funds rate for an extended period. 4. In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The amounts provided under the Term Auction Facility will continue to be scaled back, with $50 billion in 28-day credit to be offered at the next auction on February 8; the Federal Reserve expects to offer $25 billion in 28-day credit on March 8 and will consider whether to conduct further auctions beyond that date. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth. Page 2 of 8 January 26–27, 2010 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 255 of 260 January FOMC Statement—Alternative B 1. Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability. 2. Energy prices have risen in recent months. However, with substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time. 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 of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases [or holdings] of securities in light of the evolving economic outlook and conditions in financial markets. 4. In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The amounts provided under the Term Auction Facility will continue to be scaled back, with $50 billion in 28-day credit to be offered at the next auction on February 8; the Federal Reserve expects to offer $25 billion in 28-day credit on March 8 and will consider whether to conduct further auctions beyond that date. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth. Page 3 of 8 January 26–27, 2010 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 256 of 260 January FOMC Statement—Alternative C 1. Information received since the Federal Open Market Committee met in December suggests that economic activity is increasing at a solid rate and that the labor market is stabilizing. Financial market conditions have continued to become more supportive of economic growth. Household spending is expanding at a moderate rate. Business spending on equipment and software appears to be picking up, and firms have brought inventory stocks into better alignment with sales. With a sustainable economic recovery now under way, the Committee anticipates a gradual return to higher levels of resource utilization. 2. Inflation has been somewhat elevated recently, reflecting a pickup in energy prices, but longer-term inflation expectations have remained stable. The Committee expects that, with appropriate monetary policy adjustments, inflation will be at levels consistent with 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 low levels of the federal funds rate for some time. The Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases and anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate the size and composition of its securities holdings in light of the evolving economic outlook and conditions in financial markets. 4. In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The amounts provided under the Term Auction Facility will continue to be scaled back, with $50 billion in 28-day credit to be offered at the next auction on February 8; the Federal Reserve expects to offer $25 billion in 28-day credit on March 8 and will consider whether to conduct further auctions beyond that date. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth. Page 4 of 8 January 26–27, 2010 Authorized for Public Release 257 of 260 Class I FOMC - Restricted Controlled (FR) Table 1: Overview of Alternative Language for the January 26‐27, 2010 FOMC Announcement December FOMC January Alternatives B A C Economic Activity Recent Developments “has continued to pick up” “has continued to pick up” “has continued to strengthen” Labor Markets “the deterioration... is abating” Financial Markets “conditions have become more supportive” --- “conditions remain supportive” “conditions have continued to become more supportive” Other Factors fiscal and monetary stimulus, market forces “housing activity remains sluggish” “bank lending continues to contract” --- Outlook “likely to remain weak for a time” further monetary stimulus warranted by prospects for subpar recovery pace of recovery “likely to be moderate” sustainable recovery “now under way” energy prices have risen inflation somewhat elevated by pickup in energy prices “the deterioration... is abating” “is increasing at a solid rate” “the labor market is stabilizing” Inflation energy prices have risen but core inflation has remained low Recent Developments --- Key Factors substantial resource slack, stable expectations substantial resource slack, stable expectations appropriate monetary policy adjustments, stable expectations Outlook “will remain subdued for some time” “likely to be subdued for some time” “will be at levels consistent with price stability” Forward Guidance on Funds Rate Path “exceptionally low... for an extended period” “exceptionally low...for an extended period” “low...for some time” Agency MBS Purchases Amount $1.25 trillion $1.5 trillion $1.25 trillion Timing by the end of the first quarter by the end of the third quarter by the end of the first quarter Evaluation of Balance Sheet Adjustments “the timing and overall amounts of its purchases of securities” “the timing and overall amounts of its purchases of securities” Page 5 of 8 “its purchases [or holdings] of securities” “the size and composition of its securities holdings” January 26–27, 2010 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 258 of 260 DIRECTIVES DECEMBER FOMC MEETING 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 purchase agency debt and agency MBS during the intermeeting period with the aim of providing support to private credit markets and economic activity. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of private credit market conditions. The Desk is expected to execute purchases of about $175 billion in housing-related agency debt and about $1.25 trillion of agency MBS by the end of the first quarter of 2010. The Desk is expected to gradually slow the pace of these purchases as they near completion. The Committee anticipates that outright purchases of securities will cause the size of the Federal Reserve's balance sheet to expand significantly in coming months. 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 8 January 26–27, 2010 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 259 of 260 JANUARY FOMC MEETING — 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 purchase agency debt and agency MBS during the intermeeting period with the aim of providing support to private credit markets and economic activity. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of private credit market conditions. The Desk is expected to execute purchases of about $175 billion in housing-related agency debt by the end of the first quarter and to execute purchases of about $1.5 trillion of agency MBS by the end of the third quarter. The Desk is expected to gradually slow the pace of these purchases as they near completion. The Committee anticipates that outright purchases of securities will cause the size of the Federal Reserve's balance sheet to expand significantly in coming months. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions to be conducted through the end of the third quarter, as directed above. 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 8 January 26–27, 2010 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 260 of 260 JANUARY FOMC MEETING — ALTERNATIVES B AND 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 purchase agency debt and agency MBS during the intermeeting period with the aim of providing support to private credit markets and economic activity. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of private credit market conditions. The Desk is expected to execute purchases of about $175 billion in housing-related agency debt and about $1.25 trillion of agency MBS by the end of the first quarter. The Desk is expected to gradually slow the pace of these purchases as they near completion. The Committee anticipates that outright purchases of securities will cause the size of the Federal Reserve's balance sheet to expand significantly in coming months. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions to be conducted through the end of the first quarter, as directed above. 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 8
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