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January 27–28, 2009 Authorized for Public Release Appendix 1: Materials used by Ms. Mosser and Mr. Hilton 218 of 267 January 27–28, 2009 Authorized for Public Release 219 of 267 Class II FOMC – Restricted FR Page 1 of 16 (1) U.S. Libor–OIS Spreads July 1, 2007 – January 23, 2009 BPS 400 300 250 400 Sept.14: Lehman Brothers Holdings files for bankruptcy 1-Week 1-Month 3-Month 350 BPS 350 300 250 Oct.13: Euro Area Announcement Oct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and further details of Federal Reserve CPFF Program Announced 200 200 150 150 100 100 50 50 0 0 07/01/07 09/01/07 11/01/07 01/01/08 03/01/08 05/01/08 07/01/08 09/01/08 11/01/08 01/01/09 Source: Bloomberg (2) Three-Month Commercial Paper Rates August 1, 2008 – January 23, 2009 Percent 8 AA-Rated Non-Financial CP AA-Rated Financial CP AA-Rated ABCP A2/P2 Non-Financial CP 7 6 Percent 8 Oct.7: CPFF announced (effective Oct.27) 7 6 5 5 Sept.14: Lehman Brothers Holdings files for bankruptcy 4 4 3 3 2 2 1 Sept.19: AM LF announced 1 Oct.21: M M IFF announced 0 0 08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09 Source: Federal Reserve Board (3) Mortgages and Agencies August 1, 2008 – January 23, 2009 BPS 250 Percent 6.75 Sept.7: Fannie M ae and Freddie M ac enter conservatorship Sept.14: Lehman Brothers Holdings files for bankruptcy 200 6.50 Dec.30: Agency-M BS FAQ Released 150 100 6.00 50 -100 08/01/08 5.75 Nov.25: Agency Coupon and AgencyM BS Purchases Announced 0 -50 6.25 Fannie 5Y Debt Spread to TSY Yield (LHS) Mortgage OAS to Treasury (LHS) 30Y Fixed Conforming Mortgage Rate (RHS) 09/01/08 10/01/08 Source: Bloomberg, Lehman Brothers/Barclays 11/01/08 5.50 5.25 Jan.5: First Agency-M BS Purchase 5.00 12/01/08 01/01/09 January 27–28, 2009 Authorized for Public Release 220 of 267 Class II FOMC – Restricted FR Page 2 of 16 (4) Corporate Debt Cash Spreads Narrow Recently August 1, 2007 – January 23, 2009 BPS BPS 1000 2500 Investment Grade (LHS) High Yield (RHS) 800 2000 600 1500 400 1000 200 500 0 0 08/01/07 10/01/07 12/01/07 02/01/08 04/01/08 06/01/08 08/01/08 10/01/08 12/01/08 Source: Merrill Lynch/Bank of America (5) Monthly Investment Grade Bond Issuance January 2008 – January 2009 $ Billions $ Billions 140 140 Guaranteed 120 120 Not Guaranteed 100 100 80 80 60 60 40 40 20 20 0 0 Jan-08 Mar-08 Source: JPMorgan Chase May-08 Jul-08 Sep-08 Nov-08 Jan-09 (2wks) January 27–28, 2009 Authorized for Public Release 221 of 267 Class II FOMC – Restricted FR BPS 700 600 Page 3 of 16 (6) Asset-Backed Security Spreads Narrow After Year End August 1, 2008 – January 23, 2009 BPS 700 3-Year Auto (AAA-Rated) 5-Year Credit Card (AAA-Rated) 3-Year FFELP Student Loan (AAA-Rated) 600 500 500 400 400 300 300 200 200 Dec.19: TALF announced 100 100 Sept.14: Lehman Brothers Holdings files for bankruptcy 0 08/01/08 0 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09 Source: JPMorgan Chase Dollar 100 95 90 85 80 75 70 65 60 55 08/01/08 (7) Commercial Mortgage-Backed and Leveraged Loan Prices Deteriorate August 1, 2008 – January 23, 2009 100 95 90 85 80 75 70 65 60 55 CMBX Series 2 (2006) CMBX Series 4 (2007) LCDX 09/01/08 Dollar 10/01/08 Source: Lehman Brothers/Barclays, JPMorgan Chase 11/01/08 12/01/08 01/01/09 January 27–28, 2009 Authorized for Public Release 222 of 267 Class II FOMC – Restricted FR Page 4 of 16 (8) Average Daily Bid-Ask Spread: Euro-Dollar FX Rate January 1, 2007 – January 22, 2009 Percent Percent 0.030 0.030 10-Day Moving Average 0.025 0.025 Average Percent 0.020 0.020 0.015 0.015 0.010 0.010 0.005 0.005 0.000 0.000 01/01/07 04/01/07 07/01/07 10/01/07 01/01/08 04/01/08 07/01/08 10/01/08 01/01/09 Source: ICAP FX (9) Trade Quote Sizes in the Treasury Market Shrink Average Daily, 2008 - 2009 $ Millions $ Millions 250 250 2008 200 Dec. 2008 200 Jan. 2009 150 150 100 100 50 50 0 0 2-year Source: Broker Tec 5-year 10-year 30-year January 27–28, 2009 Authorized for Public Release 223 of 267 Class II FOMC – Restricted FR BPS Page 5 of 16 (10) Average Absolute Price Error between Treasury Yields and FRB Model January 1, 2007 – January 21, 2009 BPS 25 25 20 20 15 15 10 10 5 5 0 0 01/01/07 05/01/07 09/01/07 01/01/08 05/01/08 09/01/08 01/01/09 *Calculated from securities with two to ten years until maturity, excluding on-the-run and first off-the-run securities. Source: Federal Reserve Board (11) Corporate CDS Bond Basis January 1, 2007 – January 23, 2009 Percent 200 Percent 200 Sept.14: Lehman Brothers Holdings files for bankruptcy 0 0 -200 -200 -400 -400 -600 -600 Investment Grade High Yield -800 01/01/08 -800 03/01/08 05/01/08 07/01/08 09/01/08 11/01/08 01/01/09 Source: JPMorgan Chase (12) Hedge Fund Returns Decline* January 1, 1998 – December 30, 2008 Percent 40 Percent 40 Sept.14: Lehman Brothers Holdings files for bankruptcy 30 30 20 20 10 10 0 0 -10 -10 -20 -20 -30 -30 01/01/98 01/01/00 01/01/02 01/01/04 Source: CS/Tremont, Bloomberg, Lehman Brothers/Barclays 01/01/06 01/01/08 *12-Month rolling returns January 27–28, 2009 Authorized for Public Release 224 of 267 Class II FOMC – Restricted FR Page 6 of 16 (13) Bank Earnings Disappoint Expectations Q3 2008 – Q4 2008 Q4 Earnings Earnings Estimate ($bln) U.S. Bank Holding Companies JPMorgan Chase Citigroup Bank of America Merrill Lynch W ells Fargo** State Street Bank of New York-Mellon Goldman Sachs Morgan Stanley Tangible Actual Earnings Common Equity ($bln) to Assets 0.4 -5.0 1.6 -1.9 1.6 0.0 0.7 -1.7 0.5 Foreign Banks (in local currency) UBS Credit Suisse Deutsche Bank HSBC Barclays* RBS* BNP Paribas Societe Generale Q3 Capital Ratios -3.1 -3.0 -4.4 4.2 1.1 -4.2 0.7 0.6 0.7 -8.3 -1.8 -15.3 0.1 0.1 -2.1 -2.3 -4.8 Tier 1 Capital Ratio 3.8 1.8 2.6 5.4 2.4 2.1 1.6 2.0 1.2 3.4 1.0 2.7 2.1 2.7 8.9 8.2 7.6 8.7 8.6 16.0 9.3 11.6 12.7 10.8 10.4 7.6 8.2 7.9 8.2 *U.K. banks report semi-annually **Expected to report Q4 earning on 1/28/09 Source: Bloomberg (14) Bank Capital Ratios Q3 2008 Percent Percent 15 15 8 Large Banks 12 11.5% 11.1% 14 Regional Banks 12 9 9 6.1% 6 6 3.4% 3 3 0 0 Tier 1 Ratio Source: Goldman Sachs Tangible Common Equity Ratio January 27–28, 2009 Authorized for Public Release 225 of 267 Class II FOMC – Restricted FR Page 7 of 16 (15) Former Investment Bank Equity Prices August 1, 2008 – January 23, 2009 Index to 100 on 8/1/08 140 Index to 100 on 8/1/08 140 Sept.14: Lehman Brothers Holdings files for bankruptcy 120 120 100 100 80 80 60 60 40 20 0 40 Morgan Stanley Goldman Sachs S&P 500 08/01/08 09/01/08 20 Sept.22: Goldman and M organ Stanley become bank holding companies 0 10/01/08 11/01/08 12/01/08 01/01/09 Source: Bloomberg (16) Commercial Bank Equity Prices August 1, 2008 – January 23, 2009 Index to 100 on 8/1/08 Index to 100 on 8/1/08 140 140 120 120 100 100 80 80 60 60 40 20 0 JPMorgan Chase Citigroup Bank of America Wells Fargo S&P 500 08/01/08 09/01/08 40 20 Sept.14: Lehman Brothers Holdings files for bankruptcy 0 10/01/08 11/01/08 12/01/08 01/01/09 Source: Bloomberg (17) European Bank Equity Prices August 1, 2008 – January 23, 2009 Index to 100 on 8/1/08 Index to 100 on 8/1/08 140 140 120 120 100 100 80 80 60 40 20 0 Barclays RBS HSBC Deutsche Societe Generale UBS Credit Suisse 08/01/08 Source: Bloomberg 09/01/08 60 40 20 Sept.14: Lehman Brothers Holdings files for bankruptcy 0 10/01/08 11/01/08 12/01/08 01/01/09 January 27–28, 2009 Authorized for Public Release 226 of 267 Class II FOMC – Restricted FR (18) Former Investment Bank CDS Spreads August 1, 2008 – January 23, 2009 BPS 1800 1600 Page 8 of 16 Sept.14: Lehman Brothers Holdings files for bankruptcy BPS 1800 Sept.22: Goldman and M organ Stanley become bank holding companies Morgan Stanley 1400 1600 Goldman Sachs 1400 1200 1200 Oct.13: Euro Area Announcement Oct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and further details of Federal Reserve CPFF Program Announced 1000 800 1000 800 600 600 400 400 200 200 0 0 08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09 Source: Markit (19) Commercial Bank CDS Spreads August 1, 2008 – January 23, 2009 BPS 600 500 400 BPS Oct.13: Euro Area Announcement Oct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and further details of Federal Reserve CPFF Program Announced JPMorgan Chase Citigroup Bank of America Wells Fargo Nov.23: US government provides a package of gurantees, liquidity access, and capital to Citigroup 300 200 600 500 400 300 200 100 Sept.14: Lehman Brothers Holdings files for bankruptcy & Bank of America announced purchse of M errill Lynch 0 08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 100 0 01/01/09 Source: Markit (20) European Bank CDS Spreads August 1, 2008 – January 23, 2009 BPS 450 400 350 300 250 BPS Oct.13: Euro Area Announcement Oct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and further details of Federal Reserve CPFF Program Announced Barclays RBS HSBC Deutsche Societe Generale UBS CSFB Nov.23: US government provides a package of gurantees, liquidity access, and capital to Citigroup 450 400 350 300 250 200 200 150 150 100 100 Sept.14: Lehman Brothers Holdings files for bankruptcy & Bank of America announced purchse of M errill Lynch 50 0 08/01/08 Source: Bloomberg 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09 50 0 January 27–28, 2009 Authorized for Public Release 227 of 267 Class II FOMC – Restricted FR Page 9 of 16 (21) Sovereign CDS Spreads Widen August 1, 2008 – January 23, 2009 BPS 450 400 350 300 250 200 150 BPS 450 US UK Germany Spain Japan Ireland Australia Korea 400 350 300 250 200 150 100 100 50 50 0 0 08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09 Source: Bloomberg (22) Treasury Yield Curve Steepens Modestly August 1, 2007 – January 23, 2009 Percent 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 08/01/07 Percent 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 2-Year 5-Year 10-Year 30-Year 10/01/07 12/01/07 02/01/08 04/01/08 06/01/08 08/01/08 10/01/08 12/01/08 Source: Bloomberg Percent 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 (23) Distribution of Expected Policy Target Rate Among Primary Dealers Prior to January 28 FOMC Meeting S urvey Response -size indicates freq January Average Forecast Market Rates as of 1/20 Q1 2009 Q2 2009 Source: Dealer Policy Survey Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 January 27–28, 2009 Authorized for Public Release 228 of 267 Class II FOMC – Restricted FR Page 10 of 16 (24) Federal Reserve Balance Sheet Assets August 2007 – January 2009 $ Billions 2500 2250 2000 1750 1500 1250 1000 750 500 250 0 $ Billions All Other Lending PCF+PDCF AMLF CPFF FX S waps TAF Outright Agency Holdings S ingle Tranche Repo Conventional RPs Outright Treasury Holdings Autofactors 8-Aug-07 12-Sep-08 22-Oct-08 17-Dec-08 31-Dec-08 2500 2250 2000 1750 1500 1250 1000 750 500 250 0 23-Jan-09 Source: Federal Reserve Bank of New York Percent 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 07/01/08 (25) Market Rates Corresponding to Liquidity Facilities July 1, 2008 – January 23, 2009 Sept.14: Lehman Brothers Holdings files for bankruptcy Percent Year End 1M GC Treasury Repo 1M Agency-MBS Repo 1M USD Libor 3M USD Libor 3M Financial CP 09/01/08 Source: Federal Reserve Bank of New York 11/01/08 01/01/09 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 January 27–28, 2009 Authorized for Public Release 229 of 267 Class II FOMC – Restricted FR $ Billions 250 TOP (Schedule 2) 225 Schedule 2 200 Schedule 1 175 150 125 100 75 50 25 0 03/28/08 05/28/08 Page 11 of 16 (26) TSLF Loans Outstanding March 28, 2008 – January 23, 2009 $ Billions 250 225 200 175 150 125 100 75 50 25 0 Year End 07/28/08 09/28/08 11/28/08 Source: Federal Reserve Bank of New York (27) Demand at TSLF Auctions March 27, 2008 – January 22, 2009 Percent 4.5 $ Billions Sch1: Auction Size (RHS) Sch1: Amount Awarded (RHS) Sch2: Auction Size (RHS) Sch2: Amount Awarded (RHS) Sch1: Stop-Out Rate (LHS) Sch2: Stop-Out Rate (LHS) 4.0 3.5 3.0 2.5 90 80 70 60 50 2.0 40 1.5 30 1.0 20 0.5 10 0.0 3/28/08 5/9/08 6/20/08 8/1/08 Source: Federal Reserve Bank of New York 600 400 300 10/3/08 10/31/08 11/28/08 12/26/08 (28) Total Outstanding FX Swap Draw-Downs Decline December 1, 2007 – January 23, 2009 $ Billions 500 9/12/08 0 1/23/09 $ Billions 600 Norges Bank Danmark NB BOK Riksbank RBA BOJ BOE SNB ECB 500 400 300 200 200 Year End 100 100 0 12/01/07 0 02/01/08 04/01/08 Source: Federal Reserve Bank of New York 06/01/08 08/01/08 10/01/08 12/01/08 January 27–28, 2009 Authorized for Public Release 230 of 267 Class II FOMC – Restricted FR $ Billions 500 450 400 350 300 250 200 150 100 50 0 12/20/07 Page 12 of 16 (29) Term Auction Facility Loans Outstanding December 20, 2007 – January 23, 2009 $ Billions 500 Forward 450 84-Day 400 28-Day 350 300 250 Year End 200 150 100 50 0 02/20/08 04/20/08 06/20/08 08/20/08 10/20/08 12/20/08 Source: Federal Reserve Bank of New York (30) Demand at TAF Auctions December 20, 2007 – January 15, 2009 BPS 200 Auction Size (RHS) Amount Awarded (RHS) Stop-Out Rate Spread to Minimum Bid Rate (LHS) 175 150 $ Billions 200 Forward Settling Auctions 175 150 125 125 84-Day Term 100 100 75 75 50 50 25 25 0 12/20/07 2/28/08 Source: Federal Reserve Board 01/01/08 5/8/08 7/17/08 9/11/08 11/6/08 12/23/08 (31) PCF and PDCF Borrowing January 1, 2008 – January 23, 2009 $ Billions 250 225 200 175 150 125 100 75 50 25 0 0 $ Billions 250 225 200 175 150 125 100 75 50 25 0 Year End PDCF PCF Sept.14: Lehman Brothers Holdings files for bankruptcy 02/12/08 03/25/08 05/06/08 Source: Federal Reserve Bank of New York 06/17/08 07/29/08 09/09/08 10/21/08 12/02/08 01/13/09 January 27–28, 2009 Authorized for Public Release 231 of 267 Class II FOMC – Restricted FR $ Billions 400 350 300 Page 13 of 16 (32) Amount of CPFF Loans Outstanding October 27, 2008 – January 23, 2009 $ Billions 400 CP 350 FDIC Guaranteed CP 300 ABCP 250 250 200 200 150 150 100 100 50 50 0 10/27/08 0 11/11/08 11/26/08 12/11/08 12/26/08 01/10/09 Source: Federal Reserve Bank of New York (33) AMLF Loans Outstanding September 22, 2008 – January 23, 2009 $ Billions 175 $ Billions 175 150 150 125 125 100 100 75 75 50 50 25 25 0 09/22/08 10/07/08 10/22/08 11/06/08 Source: Federal Reserve Bank of New York 11/21/08 12/06/08 12/21/08 01/05/09 0 01/20/09 (34) Assets in Prime Money Market Funds August 1, 2008 – January 23, 2009 $Billions 2400 $Billions 1000 Sept.14: Lehman Brothers Holdings files for bankruptcy Sept.16: Reserve Fund breaks the buck 2200 800 Sept.19: AM LF announced Jan.5: M M IFF Oct.7: CPFF announced (effective Oct.27) eligibility expanded 2000 600 Oct.21: M M IFF 1800 400 Prime (LHS) Treasury Only (RHS) Treasury & Repo (RHS) Treasury & Agency (RHS) 1600 1400 08/01/08 Source: iMoneyNet 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09 200 0 January 27–28, 2009 Authorized for Public Release 232 of 267 Class II FOMC – Restricted FR Page 14 of 16 (35) Purchases of Agency-MBS January 5, 2009 – January 23, 2009 $ Billions 60 $ Billions 60 Cummulative Amount Purchased 50 50 Agency-MBS Purchase Size 40 40 30 30 20 20 10 10 0 0 5-Jan 6-Jan 7-Jan 8-Jan 9-Jan 12-Jan 13-Jan 14-Jan 15-Jan 16-Jan 20-Jan 21-Jan 22-Jan 23-Jan Source: Federal Reserve Bank of New York (36) Mortgage Refinance Applications January 1, 2008 – January 16, 2009 Index=100 on 1/1/08 500 Index=100 on 1/1/08 500 Dec.30: Agency-M BS FAQ Released Mortgage Application Index Mortgage Refinance Application Index 400 400 Nov.25: Agency Coupon and Agency-M BS Purchases Announced 300 300 200 200 100 100 Jan.5: First Agency-M BS Purchase 0 0 01/01/08 03/01/08 05/01/08 07/01/08 09/01/08 11/01/08 01/01/09 Source: Bloomberg (37) Purchases of Agency Coupon Debt December 5, 2008 – January 22, 2009 $ Billions 25 20 $ Billions 25 Cumulative Amount Purchased Agency Coupon Purchase Size 20 15 15 10 10 5 5 0 0 5-Dec-08 12-Dec-09 18-Dec-08 Source: Federal Reserve Bank of New York 19-Dec-08 23-Dec-08 9-Jan-09 13-Jan-09 22-Jan-09 January 27–28, 2009 Class II FOMC – Restricted FR Percent Authorized for Public Release 233 of 267 Page 15 of 16 APPENDIX: Reference Exhibits (38) Three-Month Libor and Expectations for Three-Month Libor Decline July 1, 2007 – January 23, 2009 6 Percent 6 Sept.14: Lehman Brothers Holdings files for bankruptcy 5 5 4 4 3 3 2 1 3-Month U.S. Libor Oct.13: Euro Area Announcement Oct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and further details of Federal Reserve CPFF Program Announced 2 1 3-Month Forward 3-Month Libor 0 07/01/07 09/01/07 11/01/07 01/01/08 0 03/01/08 05/01/08 07/01/08 09/01/08 11/01/08 01/01/09 Source: Bloomberg Percent 8.0 (39) Spread between Jumbo and Conforming Mortgage Rates Remains Wide January 1, 2008 – January 23, 2009 Sept.7: Fannie M ae and Freddie M ac enter conservatorship Sept.14: Lehman Brothers Holdings files for bankruptcy 7.5 Dec.30: Agency-M BS FAQ Released BPS 210 180 7.0 150 6.5 120 6.0 90 Nov.25: Agency Coupon and Agency-M BS Purchases Announced 5.5 Conforming Mortgage Rates (LHS) Jumbo Mortgage Rates (LHS) Spread (RHS) 5.0 4.5 01/01/08 04/01/08 60 30 Jan.5: First Agency-M BS Purchase 0 07/01/08 10/01/08 01/01/09 Source: Bloomberg Ratio 2.25 (40) Ten- and Thirty- Year AAA–Rated Municipal Debt Yields Decline* August 1, 2008 – January 23, 2009 Ratio 2.25 10-Year 2.00 2.00 30-Year 1.75 1.75 1.50 1.50 1.25 1.25 1.00 1.00 0.75 08/01/08 Source: Bloomberg 0.75 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09 January 27–28, 2009 Authorized for Public Release 234 of 267 Class II FOMC – Restricted FR Percent Page 16 of 16 (41) Distribution of Expected Policy Target Rate Among Primary Dealers Prior to December 16 FOMC Meeting 1.25 Survey Response -size indicates freq 1.00 December Average Forecast Market Rates as of 12/08 0.75 0.50 0.25 0.00 -0.25 Q1 2009 Source: Dealer Policy Survey Q2 2009 Q3 2009 Q4 2009 January 27–28, 2009 Authorized for Public Release Appendix 2: Materials used by Mr. Sichel, Ms. Dynan, and Mr. Reeve 235 of 267 January 27–28, 2009 Authorized for Public Release CLASS II FOMC - Restricted (FR) Material for Staff Presentation on the Economic Outlook January 27, 2009 236 of 267 January 27–28, 2009 Authorized for Public Release 237 of 267 January 27–28, 2009 Authorized for Public Release 238 of 267 January 27–28, 2009 Authorized for Public Release 239 of 267 January 27–28, 2009 Authorized for Public Release 240 of 267 January 27–28, 2009 Authorized for Public Release 241 of 267 January 27–28, 2009 Authorized for Public Release 242 of 267 January 27–28, 2009 Authorized for Public Release 243 of 267 January 27–28, 2009 Authorized for Public Release 244 of 267 January 27–28, 2009 Authorized for Public Release 245 of 267 January 27–28, 2009 Authorized for Public Release 246 of 267 Exhibit 10 Class II FOMC - Restricted (FR) Global Financial Markets Equity Prices Bank Equity Prices Index, Jun. 3, 2008 = 100 Weekly Dec. FOMC United Kingdom 110 100 Index, Jun. 3, 2008 = 100 Weekly Dec. FOMC United Kingdom 90 80 Japan Emerging markets 60 60 50 Emerging markets 40 Euro area 30 Sep 2008 Nov 70 50 Japan Jul 90 80 70 Euro area 110 100 30 Jan Jul 3-Month LIBOR-OIS Spreads 40 Sep 2008 Nov Jan Outstanding Central Bank Swap Draws Basis points Dec. FOMC Daily Dollar Billions of dollars 400 700 Weekly 350 300 600 3-month Other 500 250 400 200 Sterling 300 150 200 100 100 50 Euro 0 Jul Sep 2008 Nov 0 Jan Jul U.S. Dollar Exchange Rates Sep 2008 Nov Jan Broad Real Dollar Index, Jun. 3, 2008 = 100 Daily Index, Feb. 2002 = 100 125 Dec. FOMC 90 Monthly 120 85 115 Dec. GB Major currencies index 110 80 105 75 100 OITP index* 95 Jul Sep 2008 *Other important trading partners. Nov Jan 70 2006 2007 2008 2009 2010 January 27–28, 2009 Authorized for Public Release 247 of 267 Exhibit 11 Class II FOMC - Restricted (FR) Foreign Growth Outlook Real GDP* 2007 Percent change, annual rate** Q1 2008 Q1-Q3 Q4e 2009p Q2 H2 2010p 1. Total 2. December Greenbook 4.2 4.2 1.4 1.4 -3.8 -1.6 -2.8 -1.2 -0.8 0.1 1.5 1.5 2.8 2.8 3. 4. 5. 6. 7. Advanced Foreign Economies Japan Euro area United Kingdom*** Canada 2.6 2.0 2.1 3.0 2.8 0.2 -1.1 0.4 -0.4 0.4 -2.8 -5.2 -2.0 -5.9 -2.4 -3.4 -3.7 -2.0 -4.0 -4.4 -1.9 -1.5 -1.0 -2.2 -2.8 0.6 0.0 0.7 0.3 0.7 1.9 1.1 1.9 1.7 2.1 8. 9. 10. 11. 12. Emerging Market Economies Emerging Asia China Latin America Mexico 6.4 7.8 11.4 4.8 4.2 3.0 4.0 9.1 1.8 0.9 -5.0 -6.5 0.3 -4.1 -5.0 -1.9 -0.8 4.0 -3.5 -4.0 0.8 1.8 6.5 -0.4 -1.0 2.6 4.3 7.5 0.9 0.4 4.1 5.7 8.8 2.5 2.2 *GDP aggregates weighted by shares of U.S. merchandise exports. **Change from final quarter of preceding period to final quarter of period indicated. ***Updated since January Greenbook. Japan Global PMIs Diffusion index New export orders 12-month percent change 60 55 Real exports 10 50 Manufacturing output 45 Nov. 40 Real household spending 30 -20 25 Dec. 20 2007 -30 2008 Source: Haver Analytics. 0 -10 35 Dec. 20 2007 2008 China Euro Area 12-month percent change 12-month percent change 5.0 Industrial production 20 Nov. 2.5 15 0.0 Nov. Retail sales volume -2.5 Retail sales volume 10 Dec. -5.0 Industrial production Nov. 5 -7.5 -10.0 2007 2008 0 2007 2008 January 27–28, 2009 Authorized for Public Release 248 of 267 Exhibit 12 Class II FOMC - Restricted (FR) U.S. Trade Nominal Trade 120 Trade Balance Billions of dollars Billions of dollars Billions of dollars 190 Monthly 100 170 80 20 Monthly 150 Non-oil imports Q1p Exports 60 40 0 -20 Ex. oil imports Q1p 130 Total 110 Oil imports 20 -60 90 0 -40 -80 70 -100 2002 2003 2004 2005 2006 2007 2008 2002 2003 2004 2005 2006 2007 2008 Aircraft Exports Automotive Trade Billions of dollars Billions of dollars 25 Monthly Monthly 10 Q1p 8 20 Imports 6 15 4 10 Exports 2 Q1p 5 0 2002 2003 2004 2005 2006 2007 2008 2002 2003 2004 2005 2006 2007 2008 Trade in Real Goods and Services 2007 2009p 2008 2010p Q1-Q3 Q4e Q1 Q2 H2 Growth Rates (percent, annual rate*) 1. Exports 8.9 6.7 -19.9 -5.1 -2.7 -0.1 2.4 2. Imports 1.1 -3.9 -15.4 -11.7 -1.9 5.8 5.4 Contribution to Real GDP Growth (percentage points, annual rate*) 3. Net Exports 0.8 1.6 -0.1 1.2 -0.1 -0.8 -0.5 4. 0.8 1.6 0.4 0.9 0.1 -0.5 -0.4 December Greenbook *Change from final quarter of preceding period to final quarter of period indicated. January 27–28, 2009 Authorized for Public Release 249 of 267 Exhibit 13 Class II FOMC - Restricted (FR) Cyclical Comparisons Real GDP Percent change, Q4/Q4 NBER peak 10 8 United States 6 Foreign* 4 2 0 -2 -4 1975 1980 1985 *Weighted by shares of U.S. merchandise exports. 1990 1995 2000 2005 2010 Contribution of Trade to U.S. GDP Growth Percentage points, Q4/Q4 NBER peak Exports Imports Net exports 3 2 1 0 -1 -2 -3 1975 1980 1985 1990 1995 2000 2005 2010 Broad Real Dollar Index, historical average = 100 NBER peak 140 130 120 110 100 90 80 70 1975 1980 1985 1990 1995 2000 Note: Gray shading represents U.S. recessions as dated by the NBER. Blue shading represents the forecast period. 2005 2010 January 27–28, 2009 Authorized for Public Release 250 of 267 Exhibit 14 Class II FOMC - Restricted (FR) Commodity Prices Financial Investors’ Net Oil Futures Positions Recent Price Developments 160 Index, Jan. 3, 2007 = 100 Dollars per barrel Daily 160 450 Thousands of contracts Peak oil price Index investors Peak oil price 140 140 400 CRB nonfuel 120 100 80 80 150 100 120 100 Thousands of contracts 60 350 300 50 Noncommercial traders 0 60 WTI oil 250 40 -50 40 20 20 2007 200 2008 Apr Source: CFTC. U.S. Crude Oil Inventories Jul Oct Jan 2008 Oil Demand Millions of barrels Weekly -100 Jan Four-quarter percent change 50 Emerging economies Peak oil price 6 Peak oil price 4 25 World 2 0 Deviation from historical average 0 -2 Advanced economies -25 -4 -50 2007 -6 2008 2007 Oil Production 52 2008 Commodity Price Outlook Millions of barrels per day Millions of barrels per day 32 160 Index, Jan. 2007 = 100 Dollars per barrel 160 Peak oil price 140 Non-OPEC 50 30 120 140 Nonfuel index 120 100 48 OPEC* 100 28 80 46 January OPEC target 44 26 *Excluding Indonesia and Iraq. 2008 60 60 40 24 2007 80 Oil import price 40 20 20 2007 2008 2009 2010 January 27–28, 2009 Authorized for Public Release 251 of 267 Exhibit 15 (Last Exhibit) Class II FOMC - Restricted (FR) Prices Consumer Price Indexes Consumer Price Indexes Four-quarter percent change Four-quarter percent change 8 8 Emerging Asia 6 United Kingdom Euro area 4 6 4 Latin America 2 Canada 0 0 -2 Japan 2 -2 -4 2007 2008 2009 2010 -4 2007 CPI Excluding Food and Energy* 2008 2009 2010 CPI Excluding Food* 12-month percent change 12-month percent change 3.0 2.5 Canada Euro area 8 Dec. 2.0 6 Dec. Latin America 1.5 Dec. 1.0 United Kingdom Dec. 4 Emerging Asia 0.5 Nov. 0.0 Japan 2 Nov. -0.5 -1.0 2006 2007 *Staff estimates. 2008 0 2006 2007 *Staff estimates. Policy Rates 2008 Policy Rates Percent Percent 6 15 United Kingdom 5 Brazil 4 Euro area 10 3 Mexico Canada 2 China 5 1 Japan Korea 0 -1 2007 2008 2009 2010 0 2007 2008 2009 2010 January 27–28, 2009 Authorized for Public Release Appendix 3: Materials used by Mr. Madigan 252 of 267 January 27–28, 2009 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on FOMC Participants’ Economic Projections Brian Madigan January 27, 2009 253 of 267 January 27–28, 2009 Authorized for Public Release 254 of 267 Exhibit 1: Economic Projections of FOMC Participants for 2009 to 2011 and over the Longer Run Figure 1. Central tendencies and ranges of economic projections, 2009–11 and over the longer run Percent Change in real GDP 5 Central tendency of projections Range of projections 4 3 Actual 2 1 + 0 _ 1 2 2004 2005 2006 2007 2008 2009 2010 2011 Longer Run Percent Unemployment rate 9 8 7 6 5 2004 2005 2006 2007 2008 2009 2010 2011 Longer Run Percent PCE inflation 3 2 1 + 0 _ 2004 2005 2006 2007 2008 2009 2010 2011 Longer Run Percent Core PCE inflation 3 2 1 + 0 _ 2004 2005 2006 2007 2008 2009 2010 2011 NOTE: Definitions of variables are in the notes to table 1. The data for the actual values of the variables are annual. January 27–28, 2009 Authorized for Public Release 255 of 267 Exhibit 2: Economic Projections of FOMC Participants for 2009 to 2011 and over the Longer Run Real GDP Growth 2009 2010 2011 Longer-Run Central Tendency October projections -1.3 to -0.5 -0.2 to 1.1 2.5 to 3.3 2.3 to 3.2 3.8 to 5.0 2.8 to 3.6 2.5 to 2.7 2.5 to 2.7 Range October projections -2.5 to 0.2 -1.0 to 1.8 1.5 to 4.5 1.0 to 4.5 2.3 to 5.5 2.0 to 5.0 2.4 to 3.0 2.0 to 2.9 Memo: Greenbook October Greenbook -0.8 -0.1 2.6 2.3 4.9 4.5 2.7 2.7 Unemployment Rate 2009 2010 2011 Longer-Run Central Tendency October projections 8.5 to 8.8 7.1 to 7.6 8.0 to 8.3 6.5 to 7.3 6.7 to 7.5 5.5 to 6.6 4.8 to 5.0 4.8 to 5.0 Range October projections 8.0 to 9.2 6.6 to 8.0 7.0 to 9.2 5.5 to 8.0 5.5 to 8.0 4.9 to 7.3 4.5 to 5.5 4.5 to 5.8 Memo: Greenbook October Greenbook 8.4 7.2 8.1 7.2 6.7 6.4 4.8 4.8 PCE Inflation 2009 2010 2011 Longer-Run Central Tendency October projections 0.3 to 1.0 1.3 to 2.0 1.0 to 1.5 1.4 to 1.8 0.9 to 1.7 1.4 to 1.7 1.7 to 2.0 1.7 to 1.8 Range October projections -0.5 to 1.5 1.0 to 2.2 0.7 to 1.8 1.1 to 1.9 0.2 to 2.1 0.8 to 1.8 1.5 to 2.0 1.5 to 2.0 Memo: Greenbook October Greenbook 0.6 1.4 1.1 1.4 0.8 1.1 --------- Core PCE Inflation 2009 2010 2011 Central Tendency October projections 0.9 to 1.1 1.5 to 2.0 0.8 to 1.5 1.3 to 1.8 0.7 to 1.5 1.3 to 1.7 Range October projections 0.6 to 1.5 1.3 to 2.1 0.4 to 1.7 1.1 to 1.9 0.0 to 1.8 0.8 to 1.8 Memo: Greenbook October Greenbook 1.0 1.5 0.8 1.3 0.6 1.1 January 27–28, 2009 Authorized for Public Release 256 of 267 Exhibit 3: Risks and Uncertainty in Economic Projections Uncertainty about GDP Growth 16 October January Risks to GDP Growth 16 12 12 8 8 4 4 0 0 Lower Similar Higher Downside Balanced Uncertainty about PCE Inflation 16 October January Upside Risks to PCE Inflation 16 12 12 8 8 4 4 0 0 Lower Similar Higher Downside Balanced Upside January 27–28, 2009 Authorized for Public Release 257 of 267 Exhibit 4: GDP Growth Projections of FOMC Participants for 2009 to 2011 and over the Longer Run Figure 2.A. Distribution of participants’ projections for the change in real GDP, 2009–11 and over the longer run Number of participants 2009 12 January projections October projections 10 8 6 4 2 -2.6- -2.2- -1.8- -1.4- -1.0- -0.6- -0.2-0.0- 0.2-0.4-0.6-0.8-1.0-1.2-1.4- 1.6-1.8-2.0-2.2-2.4-2.6- 2.8-3.0-3.2-3.4-3.6-3.8-4.0- 4.2-4.4-4.6-4.8-5.0-5.2-5.4-2.4- -2.0- -1.6- -1.2- -0.8- -0.4-2.5-2.3-2.1-1.9-1.7-1.5-1.3 -1.1-0.9-0.7-0.5-0.3-0.1 0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7 4.9 5.1 5.3 5.5 Percent range Number of participants 2010 12 10 8 6 4 2 -2.6- -2.2- -1.8- -1.4- -1.0- -0.6- -0.2-0.0- 0.2-0.4-0.6-0.8-1.0-1.2-1.4- 1.6-1.8-2.0-2.2-2.4-2.6- 2.8-3.0-3.2-3.4-3.6-3.8-4.0- 4.2-4.4-4.6-4.8-5.0-5.2-5.4-2.4- -2.0- -1.6- -1.2- -0.8- -0.4-2.5-2.3-2.1-1.9-1.7-1.5-1.3 -1.1-0.9-0.7-0.5-0.3-0.1 0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7 4.9 5.1 5.3 5.5 Percent range Number of participants 2011 12 10 8 6 4 2 -2.6- -2.2- -1.8- -1.4- -1.0- -0.6- -0.2-0.0- 0.2-0.4-0.6-0.8-1.0-1.2-1.4- 1.6-1.8-2.0-2.2-2.4-2.6- 2.8-3.0-3.2-3.4-3.6-3.8-4.0- 4.2-4.4-4.6-4.8-5.0-5.2-5.4-2.4- -2.0- -1.6- -1.2- -0.8- -0.4-2.5-2.3-2.1-1.9-1.7-1.5-1.3 -1.1-0.9-0.7-0.5-0.3-0.1 0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7 4.9 5.1 5.3 5.5 Percent range Number of participants Longer Run 12 10 8 6 4 2 -2.6- -2.2- -1.8- -1.4- -1.0- -0.6- -0.2-0.0- 0.2-0.4-0.6-0.8-1.0-1.2-1.4- 1.6-1.8-2.0-2.2-2.4-2.6- 2.8-3.0-3.2-3.4-3.6-3.8-4.0- 4.2-4.4-4.6-4.8-5.0-5.2-5.4-2.4- -2.0- -1.6- -1.2- -0.8- -0.4-2.5-2.3-2.1-1.9-1.7-1.5-1.3 -1.1-0.9-0.7-0.5-0.3-0.1 0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7 4.9 5.1 5.3 5.5 Percent range NOTE: Definitions of variables are in the general note to table 1. January 27–28, 2009 Authorized for Public Release 258 of 267 Exhibit 5: Unemployment Projections of FOMC Participants for 2009 to 2011 and over the Longer Run Figure 2.B. Distribution of participants’ projections for the unemployment rate, 2009–11 and over the longer run Number of participants 2009 12 January projections October projections 10 8 6 4 2 4.4- 4.6- 4.8- 5.0- 5.2- 5.4- 5.6- 5.8- 6.0- 6.2- 6.4- 6.6- 6.8- 7.0- 7.2- 7.4- 7.6- 7.8- 8.0- 8.2- 8.4- 8.6- 8.8- 9.0- 9.24.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7 7.9 8.1 8.3 8.5 8.7 8.9 9.1 9.3 Percent range Number of participants 2010 12 10 8 6 4 2 4.4- 4.6- 4.8- 5.0- 5.2- 5.4- 5.6- 5.8- 6.0- 6.2- 6.4- 6.6- 6.8- 7.0- 7.2- 7.4- 7.6- 7.8- 8.0- 8.2- 8.4- 8.6- 8.8- 9.0- 9.24.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7 7.9 8.1 8.3 8.5 8.7 8.9 9.1 9.3 Percent range Number of participants 2011 12 10 8 6 4 2 4.4- 4.6- 4.8- 5.0- 5.2- 5.4- 5.6- 5.8- 6.0- 6.2- 6.4- 6.6- 6.8- 7.0- 7.2- 7.4- 7.6- 7.8- 8.0- 8.2- 8.4- 8.6- 8.8- 9.0- 9.24.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7 7.9 8.1 8.3 8.5 8.7 8.9 9.1 9.3 Percent range Number of participants Longer Run 12 10 8 6 4 2 4.4- 4.6- 4.8- 5.0- 5.2- 5.4- 5.6- 5.8- 6.0- 6.2- 6.4- 6.6- 6.8- 7.0- 7.2- 7.4- 7.6- 7.8- 8.0- 8.2- 8.4- 8.6- 8.8- 9.0- 9.24.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7 7.9 8.1 8.3 8.5 8.7 8.9 9.1 9.3 Percent range NOTE: Definitions of variables are in the general note to table 1. January 27–28, 2009 Authorized for Public Release 259 of 267 Exhibit 6: PCE Inflation Projections of FOMC Participants for 2009 to 2011 and over the Longer Run Figure 2.C. Distribution of participants’ projections for PCE inflation, 2009–11 and over the longer run Number of participants 2009 12 January projections October projections 10 8 6 4 2 -0.5-0.4 -0.3-0.2 -0.10.0 0.10.2 0.30.4 0.50.6 0.70.8 0.91.0 1.11.2 1.31.4 1.51.6 1.71.8 1.92.0 2.12.2 Percent range Number of participants 2010 12 10 8 6 4 2 -0.5-0.4 -0.3-0.2 -0.10.0 0.10.2 0.30.4 0.50.6 0.70.8 0.91.0 1.11.2 1.31.4 1.51.6 1.71.8 1.92.0 2.12.2 Percent range Number of participants 2011 12 10 8 6 4 2 -0.5-0.4 -0.3-0.2 -0.10.0 0.10.2 0.30.4 0.50.6 0.70.8 0.91.0 1.11.2 1.31.4 1.51.6 1.71.8 1.92.0 2.12.2 Percent range Number of participants Longer Run 12 10 8 6 4 2 -0.5-0.4 -0.3-0.2 -0.10.0 0.10.2 0.30.4 0.50.6 0.70.8 Percent range NOTE: Definitions of variables are in the general note to table 1. 0.91.0 1.11.2 1.31.4 1.51.6 1.71.8 1.92.0 2.12.2 January 27–28, 2009 Authorized for Public Release 260 of 267 Exhibit 7: Core PCE Inflation Projections of FOMC Participants for 2009 to 2011 Figure 2.D. Distribution of participants’ projections for core PCE inflation, 2009–11 and over the longer run Number of participants 2009 January projections October projections 12 10 8 6 4 2 -0.10.0 0.10.2 0.30.4 0.50.6 0.70.8 0.91.0 1.11.2 1.31.4 1.51.6 1.71.8 1.92.0 2.12.2 Percent range Number of participants 2010 12 10 8 6 4 2 -0.10.0 0.10.2 0.30.4 0.50.6 0.70.8 0.91.0 1.11.2 1.31.4 1.51.6 1.71.8 1.92.0 2.12.2 Percent range Number of participants 2011 12 10 8 6 4 2 -0.10.0 0.10.2 0.30.4 0.50.6 0.70.8 0.91.0 Percent range NOTE: Definitions of variables are in the general note to table 1. 1.11.2 1.31.4 1.51.6 1.71.8 1.92.0 2.12.2 January 27–28, 2009 Authorized for Public Release Appendix 4: Materials used by Mr. Madigan 261 of 267 January 27–28, 2009 Authorized for Public Release 262 of 267 Class I FOMC – Restricted Controlled (FR) Material for FOMC Briefing on Monetary Policy Alternatives Brian Madigan January 27-28, 2009 January 27–28, 2009 Authorized for Public Release Exhibit 1 Unconventional Policy Tools 1. Policy communications • About the federal funds rate o Quantitative expectations o Qualitative expectations o Conditional expectations • About other policy tools o Amounts and time frame • About inflation outlook and objectives o Explicit numerical inflation objective o Longer-term projections o Express concern about undesirably low inflation 2. Credit policies • Supporting or substituting for dysfunctional markets 3. Transactions under open market authority • Swap arrangements • MBS purchases • Treasury purchases 263 of 267 January 27–28, 2009 Authorized for Public Release 264 of 267 Alternative A 1. The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 2. Information received since the Committee met in December suggests that the economy has weakened somewhat more than anticipated. Industrial production, housing starts, and employment have declined steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are sizable significant. 3. In light of the declines in the prices of energy and other commodities in recent months and the prospects for an extended period of economic slack, the Committee expects that inflation pressures will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term. 4. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. [Alt. 1: To provide further support to activity in housing markets, the Committee decided to expand its purchases of agency mortgage-backed securities to $750 billion this year from its previously announced total of $500 billion. The Committee anticipates completing these purchases by the end of the third quarter. The Committee also is prepared to purchase longerterm Treasury securities as needed to improve overall financial conditions.] [Alt. 2: To help improve overall financial conditions, the Committee decided to purchase up to $250 billion of longer-term Treasury securities this year. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand such purchases as conditions warrant.] Next month, the Federal Reserve will implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability. January 27–28, 2009 Authorized for Public Release 265 of 267 Alternative B 1. The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 2. Information received since the Committee met in December suggests that the outlook for the economy remains weak. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant. 3. In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. 4. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities as needed to improve if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. Next month, the Federal Reserve will implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability. January 27–28, 2009 Authorized for Public Release 266 of 267 Alternative C 1. The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 2. Information received since the Committee met in December suggests that the outlook for the economy remains weak. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain tight. The Committee anticipates that a recovery in economic activity will begin later this year, supported in part by additional fiscal measures and the monetary and liquidity policies already in place. 3. The declines in the prices of energy and other commodities in recent months have significantly reduced overall price inflation. With economic slack likely to persist, the Committee expects that both overall and core consumer price inflation will remain low. 4. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets. Next month, the Federal Reserve will implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments. January 27–28, 2009 Authorized for Public Release 267 of 267 December FOMC Statement The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent. Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further. Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
@FedFRASER