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1/30-31/01 193 APPENDIX 1 Charts used by Mr. Fisher. 3-Month Deposit Rates Page 1 November 1, 2000 - January 26, 2001 Current Deposit Rate and Rates Implied by Traded Forward Rate Agreements United States Euro-area Japan Percent 7.2 LIBOR Fixing 6.8 9-Mo. Forward Percent U.S. Oct. Dur. Goods Orders Data -5.5% 11/28 FOMC 11/15 3-Mo. Forward FOMC 12/19 FOMC 1/3 -50bp 7.2 Phil. Fed Survey 1/18 6.8 6.4 6.4 United States 6.0 6.0 5.6 5.6 5.2 Euro-area 5.2 4.8 4.8 4.4 4.4 4.0 11/1 4.0 11/15 0.8 FOMC 11/15 11/29 12/13 12/27 1/10 Tankan Survey 12/13 FOMC 12/19 1/24 Japan 0.6 0.4 0.2 0.0 11/1 11/15 Source: Reuters, Bloomberg 11/29 12/13 12/27 1/10 1/24 Page 2 2-Year Government Yields minus Central Bank Policy Rates June 1, 2000 - January 26, 2001 Basis Points Basis Points 150 150 Germany 100 100 50 Japan U.K. 0 50 0 -50 -50 Canada U.S. -100 -100 -150 -150 -200 -200 6/1 Basis Points 7/1 8/1 9/1 10/1 11/1 12/1 1/1 2-Year Swap Rates minus Central Bank Policy Rates June 1, 2000 - January 26, 2001 Basis Points 160 160 120 120 Euro-Area 80 80 Japan 40 U.S. 0 0 U.K. Canada -40 40 -40 -80 -80 -120 -120 6/1 7/1 8/1 9/1 10/1 11/1 Policy Rates: US: Federal Funds Rate (O/N), Euro area: Main refinancing rate (2-week), Japan: Overnight Call Rate, U.K.: Base Rate (O/N repo), Canada: Overnight Target (midpoint of bank rate and discount rate) 12/1 1/1 Sources: Bloomberg G-3 Trade-Weighted Currencies Percent Change from 11/1/00 10 November 1, 2000 - January 26, 2001 FOMC 12/19 FOMC 11/15 Page 3 Percent Change from 11/1/00 10 FOMC 1/3 5 5 Euro 0 0 Dollar -5 -5 Yen -10 -10 Source: Bank of England, Bloomberg -15 11/1 11/15 11/29 -15 12/13 12/27 1/10 1/24 U.S. and European Swap Differentials (U.S. rate minus European rate) Basis Points 170 Basis Points November 1, 2000 - January 26, 2001 FOMC 12/19 FOMC 11/15 140 170 FOMC 1/3 140 2-Year Differential 110 110 10-Year Differential 80 80 50 50 20 20 11/1 11/15 Source: Bloomberg 11/29 12/13 12/27 1/10 1/24 Page 4 Yield Curves Percent November 15, 2000 Percent 10.50 December 19, 2000 Percent Percent 10.50 10.50 BB1Industrial Corporates 9.50 8.50 9.50 9.50 8.50 8.50 7.50 7.50 6.50 6.50 10.50 BB1 Industrial Corporates 8.50 A2 Industrial Corporates 7.50 9.50 A2 Industrial Corporates 7.50 Swap Rates 6.50 FF Target FF Target Swap Rates Treasury 5.50 4.50 0 2 4 6 8 6.50 10 12 14 16 18 20 22 24 5.50 5.50 4.50 4.50 4.50 0 26 28 30 5.50 Treasury 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 January 26, 2001 January 3, 2001 10.50 10.50 10.50 BB1 Industrial Corporates 9.50 8.50 A2 Industrial Corporates 7.50 6.50 Swap Rates 9.50 9.50 8.50 8.50 7.50 7.50 6.50 6.50 10.50 BB1 Industrial Corporates 8.50 7.50 A2 Industrial Corporates 6.50 Swap Rates FF Target FF Target 5.50 Treasury 4.50 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 9.50 5.50 5.50 4.50 4.50 5.50 Treasury 4.50 0 2 4 Sources: A2 Industrial Corporates: Bloomberg Industrial Corporate A2 Index BB1 Industrial Corporates: Bloomberg Industrial Corporate 2B1 Index Swap Rates: Bloomberg Treasury: FRBNY Price Data 6 8 10 12 14 16 18 20 22 24 26 28 30 Commercial Paper (A2/P2 - A1/P1) Spreads and Yields September through February, 1996 - 2001 30-day Spreads (bps) 120 (bps) 120 120 Year End 1996-1997 1997-1998 1998-1999 100 (bps) 90-day Spreads (bps) 120 1996-1997 1997-1998 1998-1999 1999-2000 Series7 2000-2001 Year End 100 100 80 80 80 80 60 60 60 60 40 40 40 40 20 20 20 20 0 0 1999-2000 2000-2001 0 9/1 9/15 9/29 10/1310/2711/1011/24 12/8 12/22 1/5 1/19 2/2 2/16 (%) 8.0 30-Day Yields 100 0 9/1 9/15 9/29 10/1310/2711/1011/24 12/8 12/22 1/5 1/19 2/2 2/16 90-Day Yields (%) 8.0 (%) 8.0 7.5 7.5 7.0 7.0 6.5 6.5 6.0 6.0 6.0 6.0 5.5 5.5 5.5 5.5 5.0 5.0 5.0 5.0 4.5 4.5 7.5 2000 - 01 Year End A2/P2 A1/P1 1/3/01 -50 bps (6.00%) 7.0 6.5 9/1 9/15 9/29 10/13 10/27 11/10 11/24 12/8 12/22 1/5 Source: Bloomberg compiled index Year 2001 Data as of January 26 1/19 2/2 2/16 Year End A2/P2 A1/P1 1/3/01 -50 bps (6.00%) 7.5 7.0 6.5 4.5 9/1 9/15 9/29 10/1310/2711/1011/24 12/8 12/22 1/5 1/19 2/2 2/16 Page 5 4.5 2000- 01 (%) 8.0 Page 6 Cumulative changes in net autonomous factors and redemptions from Oct. 3 0 Key: Lines with circles show actual; lines without circles show projected; dotted line shows projected change in autonomous factors, projections as of Dec. 13 Millions of dollars 0 Impact of changes in autonomous factors, including currency, Treasury balances, float and the foreign RP pool. -5000 -5000 Projections as of Dec. 13 -10000 -10000 -15000 -15000 -20000 -20000 -25000 -25000 -30000 Cumulative redemptions since Oct. 3 -35000 -30000 -35000 FOMC 12/19 -40000 -40000 Year End -45000 4-Oct 18-Oct 1-Nov 15-Nov 29-Nov 13-Dec 27-Dec 10-Jan 24-Jan -45000 7-Feb Actual and projected open market operations from Oct. 3 Key: Lines with circles show actual; lines without circles show projected 55000 Millions of dollars 55000 Year End 50000 50000 Other RPs (less MPSs). 45000 45000 $21 bn FOMC 12/19 40000 40000 35000 35000 30000 30000 25000 25000 20000 Level of 28-day RPs outst anding 15000 $23.0 bn $12.0 bn 15000 10000 10000 Cum ulat ive outri ght purchases since Oct. 3 5000 0 4-Oct 20000 18-Oct 1-Nov 15-Nov 29-Nov 13-Dec 27-Dec 10-Jan 5000 24-Jan 0 7-Feb Page 7 Extended Reserve Outlook Impact of Changes in Factors, Redemptions, and RPs on Reserves from maintenance period ended January 24 to period ended June 27 net impact of forecast Factors movements -$6 billion impact of anticipated Redemptions -$10 billion Total impact of factors and redemptions -$16 billion Level of RPs in January 24 period long-term RPs $19 billion short-term RPs $4 billion Case A: impact of reducing long-term RPs to zero -$19 billion total decline in reserves from RPs, factors, redemptions -$35 billion Case B: impact of reducing long-term RPs to $10 billion -$9 billion total decline in reserves from RPs, factors, redemptions -$25 billion Notes: movements in factors also include impact of changes in requirements on reserve needs in addition to changes in operating factors such as currency and Treasury balance. 1/30-31/01 194 APPENDIX 2 “Staff Presentation on the Economic Outlook.” STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC Material for Staff Presentation on the Economic Outlook January 30, 2001 Chart 1 Forecast Summary Growth in Real GDP and Selected Components Percent change, AR* 2000 2001 2002 H1 H2 1. Real GDP 3.7 .4 3.1 3.8 2. 5.1 1.4 2.6 3.7 4.5 1.2 2.0 2.8 10.3 1.2 6.3 10.9 .0 –1.3 .3 .2 Private domestic final purchases 3. PCE 4. Equipment and software Memo: 5. Contribution of inventory investment (percentage points) *Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2. Unemployment Rate Percent 6.5 6 5.5 5 4.5 4 3.5 1997 1998 1999 2000 2001 2002 PCE Prices Percent change, Q4/Q4 3 2.5 2 1.5 1 0.5 0 1997 1998 1999 2000 2001 2002 Chart 2 Key Background Factors Federal Funds Rate Percent 7 Nominal 6.75 6.5 6.25 6 5.75 5.5 5.25 5 4.75 4.5 1998 1999 2000 2001 2002 Other factors: Stock market falls in the near term, and then is flat through the end of the projection period. This implies a falling wealth-income ratio. Long-term corporate interest rates remain near current levels throughout the projection period. Consequently, risk spreads on corporate bonds will remain elevated. The foreign exchange value of the dollar declines moderately in real terms over the projection period. Fiscal policy will be stimulative next year. We assume a package of tax cuts worth $50 billion in the next fiscal year as well as further increases in discretionary spending. Prices of oil and natural gas are expected to recede over the next two years, consistent with quotes in futures markets. Chart 3 Selected High Frequency Activity Indicators New Orders New Orders Billions of dollars Billions of dollars 250 Consumer durable goods 60 Nondefense capital goods, excl. aircraft 50 200 40 150 30 Three-month moving average Three-month moving average 100 1989 1991 1993 1995 1997 1999 2001 20 1989 IP Diffusion Index 1991 1993 1995 1997 1999 2001 Initial claims for Unemployment Insurance Index Thousands 80 600 Four-week moving average Three-month 70 500 60 50 400 40 300 30 20 1989 1991 1993 1995 1997 1999 200 1989 Michigan Index of Consumer Sentiment 1991 1993 1995 1997 1999 2001 Building Permits* Thousands of units Index 200 Expected conditions index (Feb. 1966=100) 1600 Single-family homes 150 1200 100 800 50 0 1989 1991 1993 1995 1997 1999 2001 400 1989 1991 1993 1995 1997 *Adjusted for non-permit issuing places. 1999 2001 Chart 4 Inventories and Production Days’ Supply of Light Motor Vehicles Motor Vehicles Days IP index 90 200 80 160 70 120 60 80 50 1990 1992 1994 1996 1998 2000 40 1990 Manufacturing Excl. MV and High Tech 1992 1994 1996 1998 2000 Manufacturing Excl. MV and High Tech Inventory-shipments ratio IP index 1.9 130 1.8 120 1.7 110 1.6 100 1.5 90 1.4 1.3 1990 1992 1994 1996 1998 2000 Real GDP 80 1990 1992 1994 1996 1998 2000 Final Sales and Inventories Percent change, AR Percent change, AR 8 Final sales 2000 2001 Inventories 6 Q4 Q1 Q2 H2 2.0 –.5 1.3 3.1 4 2. Manuf. sector –.5 –1.7 .2 .8 2 3. Other 2.5 1.2 1.1 2.3 1. Real GDP Contribution of: 0 2000 2001 2002 Chart 5 The Longer-Run Fundamentals Effects of Changes in the Real Funds Rate Percentage points on GDP Growth* Fiscal Impetus* Percent of GDP 0.8 1.5 1 0.6 0.5 0.4 + 0 – 0.2 0.5 1 1999 2000 2001 2002 *Relative to unchanged real funds rate after 1998:Q3. 2000 2001 2002 *Fiscal Impetus is an indicator of the change in discretionary fiscal policy. User Cost of Capital Share of Banking Industry Assets at Well-Capitalized Banks Index (1989:Q1 = 100) 0 1999 Percent 100 100 90 80 80 60 70 40 60 1990 1994 1998 2002 Direct Effects of Oil and Natural Gas Price Percentage points Changes on PCE Growth* 20 1990 1994 1998 Real Personal Income Growth Percent change, Q4/Q4 0.4 5 0.2 4 + 0 – 3 0.2 2 0.4 1 0.6 0.8 2000 2001 2002 *Relative to unchanged energy prices after 1999:Q4. 0 1999 2000 2001 2002 Chart 6 Labor Productivity Supply-Side Components of Potential GDP Percent change, Q4/Q4 1973–95 1996–99 2000 2001 2002 1. Potential GDP 2.9 3.9 4.4 4.2 4.1 2. Labor input 1.6 1.2 1.1 1.1 1.1 3. Labor productivity 1.4 2.7 3.3 3.1 3.0 4. Capital deepening .7 1.2 1.5 1.3 1.2 5. Labor quality .3 .3 .3 .3 .3 6. Multifactor productivity .4 1.2 1.5 1.5 1.5 Capital Services Structural Multifactor Productivity Percent change, Q4/Q4 Percent change, Q4/Q4 8 1.6 6 1.2 1900-2000 annual average 1975 1984 1993 4 0.8 2 0.4 0 2002 0 1975 1980 Nonfarm Business Output 1985 1990 1995 2000 NFB Productivity Four-quarter percent change 9 Percent change, AR* 6 Productivity 3 Hours + 0 – 1999 4.1 2000 3.5 2001 H1 .7 H2 3.1 2002 3.1 3 1998 1999 2000 2001 2002 *Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2. Chart 7 Inflation Indicators GDP Gap Unemployment Rate Billions of chained (1996) dollars, ratio scale Percent 11000 Q4 10000 1999 4.1 2000 4.0 2001 5.2 2002 5.5 Actual 9000 Potential 8000 7000 1994 1995 1996 1997 1998 1999 2000 2001 Unemployment Rate 2002 Inflation Expectations Percent Percent 3.5 5 Michigan SRC One-year ahead, median 4 Maximum 3 3 Current episode 2 1 Minimum Forecast + 0 – 2.5 FRB Philadelphia One-year ahead 1 2 6 5 4 3 2 1 0 1 2 3 - quarters + 4 5 6 2 1997 1998 Labor Compensation 1999 2000 Unit Labor Costs* Four-quarter percent change 8 Percent change, Q4/Q4 NFB compensation per hour Actual Trend 1999 .8 1.5 2000 2.0 2.3 2001 3.4 2.2 2002 1.9 2.0 6 4 Employment cost index 2 0 1990 1993 1996 1999 2002 *Nonfarm business sector. Chart 8 Inflation Projection PPI Intermediate excl. Food and Energy PCE Petroleum Products Four-quarter percent change 84 Four-quarter percent change 4 PPI intermediate excl. food and energy (right scale) 82 60 Heating Fuel 2 30 + 0 – 80 78 Gasoline + 0 – 2 Manufacturing CU (left scale) 76 4 1998 1999 2000 2001 30 2002 1998 PCE Service Fuels 1999 2000 2001 2002 Energy Effects Four-quarter percent change Q4/Q4 contribution to PCE inflation 60 1 Direct Indirect Natural gas Electricity 30 0.5 + 0 – + 0 – 30 1998 1999 2000 2001 0.5 2002 1998 1999 2000 2001 2002 PCE Prices Four-quarter percent change 3 Percent change, Q4/Q4 Total Total PCE CPI 1999 2.0 2.6 2000 2.3 3.4 2001 1.8 2.3 2002 1.7 2.0 2.5 Core PCE 2 1.5 1 Core PCE market prices 0.5 1995 1996 1997 1998 1999 2000 2001 2002 Chart 9 Productivity Risks E&S Computer Prices Long-term Earnings Expectations Four-quarter percent change Percent change, AR 10 16 + 0 – 14 10 12 20 30 1992 1994 1996 1998 2000 10 2002 1992 1994 1996 1998 2000 Source: IBES. Average Return to Capital Percent 0.24 0.21 0.18 0.15 0.12 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Structural Labor Productivity Dollars per hour, ratio scale 44 The "S-curve" Baseline Alternative 40 36 32 28 1994 1996 1998 2000 2002 2004 Chart 10 A Productivity Disappointment Stock Market Real GDP Wilshire 5000 Level Four-quarter percent change 21000 Greenbook baseline Constant real funds rate Taylor Rule policy 10 Greenbook baseline Constant real funds rate Taylor Rule policy 18000 8 15000 6 12000 4 9000 2 6000 1999 2001 2003 2005 0 1999 Unemployment Rate 2001 2003 2005 Core PCE Percent Four-quarter percent change 3 10 Greenbook baseline Constant real funds rate Taylor Rule policy Greenbook baseline Constant real funds rate Taylor Rule policy 9 2.5 8 7 2 6 5 1.5 4 3 1999 2001 2003 2005 1 1999 Profit share 2001 2003 2005 Nominal Federal Funds Rate Percent of GDP Percent 12 Greenbook baseline Constant real funds rate Taylor Rule policy 8 Greenbook baseline Constant real funds rate Taylor Rule policy 10 7.5 7 6.5 8 6 5.5 6 5 4 1999 2001 2003 2005 4.5 1999 2001 2003 2005 Chart 11 Exchange Rates and Interest Rates Interest Rate Futures Nominal Exchange Rates Euro Area Foreign currency per U.S. dollar Jan. 1999 = 100 Percent 145 135 Euro 6.5 6.0 June 27, 2000 125 5.5 115 5.0 Major* 105 95 January 29, 2001 Japanese yen 1999 2001 2000 85 2000 2001 4.5 4.0 2002 *Trade weighted-average dollar against major international currencies. Japan Interest Rates Percent Level 1/29/01 Change 6/27/00 to 1/29/01 Three-Month 1. Euro 2. Japan 3. United States 4.79 0.42 5.46 0.23 0.34 -1.28 Ten-Year 1. Germany 2. Japan 3. United States 4.84 1.45 5.30 -0.41 -0.29 -0.80 2.5 2.0 1.5 June 27, 2000 1.0 0.5 January 29, 2001 2000 Stock Prices 2001 0.0 2002 United States Jan. 1999 = 100 TOPIX Percent 170 7.0 6.5 150 June 27, 2000 6.0 130 DJ Euro 5.5 S&P 500 1999 2000 January 29, 2001 110 2001 90 5.0 2000 2001 2002 4.5 Chart 12 Financial Indicators: Emerging Market Countries (Weekly data) Asia Nominal Exchange Rates Latin America Nominal Exchange Rates Foreign currency per U.S. dollar Jan. 1999 = 100 130 Foreign currency per U.S. dollar 120 Thai baht Korean won 180 160 Brazilian real 110 140 100 120 Argentine peso 90 100 Indonesian rupiah 1999 Jan. 1999 = 100 Mexican peso 2001 2000 80 Interest Rates and Spreads 1999 2001 2000 80 Interest Rates and Spreads Change 6/27/00 to 1/29/01 Level 1/29/01 Level 1/29/01 Change 6/27/00 to 1/29/01 One-Month Domestic 1. Korea* 5.50 2. Thailand 3.00 3. Indonesia 14.91 -0.50 -0.50 3.08 One-Month Domestic 1. Mexico 17.75 2. Brazil 14.85 3. Argentina 7.75 0.75 -3.40 0.00 Offshore-Dollar Bond Spreads 4. Korea 2.23 5. Indonesia 7.41 6. China 1.31 0.23 1.08 -0.05 Brady Bond Yield Spreads 4. Mexico 3.98 5. Brazil 8.15 6. Argentina 8.73 -1.01 -0.70 -0.21 * One-week maturity. Stock Indexes Stock Indexes Jan. 1999 = 100 Jan. 1999 = 100 340 300 300 China* Brazil Korea 2000 *Shanghai B-share (foreigners only) stock price index. 260 260 220 220 180 180 Mexico 140 100 Indonesia 1999 340 2001 60 140 100 Argentina 1999 2000 2001 60 Chart 13 Summary of Foreign Outlook Real GDP Growth Foreign Real GDP* Percent change, SAAR* U.S. Total foreign Percent change, Q4/Q4 8 Industrial countries Asia Latin America 7 H1 6 H2 2000 2001 2002 6 5 4 4 3 3 2 2 1 1 0 2000 2001 *U.S. nonagricultural export weights. Exports Real GDP Growth Taiwan Korea Malaysia Thailand 7 5 *Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2. Jan. 1999 = 100 160 0 2002 Percent, SAAR* 150 2000 2001 2002 H1 H2 140 130 120 110 100 1999 3.7 4.5 5.2 of which: 2. China 5.6 9.2 7.4 7.7 3. Korea 5.9 5.7 3.0 4.7 4. Malaysia 11.2 0.6 5.3 5.1 5. Thailand 4.3 -0.4 6.0 5.0 *Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2. **U.S. nonagricultural export weights. Argentina: Financing Requirements Real GDP Growth $ billions Short term debt Amortization - Private Fiscal Deficit 1. Developing Asia** 8.5 90 2000 16 Percent, SAAR* other Amortization - IFI 2000 2001 2002 H1 H2 12 $10.0 8 $6.6 $6.3* $5.8 $4.9 4 2000 2001 Q1 Q2 Q3 Q4 Source: Argentine Ministry of Economy; Deutsche Bank. *2000 quarterly average. 8 1. Latin America** 7.7 4.4 3.8 4.4 of which: 2. Mexico 9.2 5.1 4.0 4.7 3. Brazil 3.9 3.9 3.3 4.0 4. Argentina -1.6 -3.5 1.9 3.3 0 *Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2. **U.S. nonagricultural export weights. Chart 14 Industrial Country Outlook GDP Leading Indicators 120 Jan. 1999 = 100 Business Confidence Diffusion index, percent 100 20 Percent balance 1977Q1 = 100 170 Euro Area 10 115 160 Canada 80 0 110 150 60 Canada -10 Japan 105 Japan Euro Area 100 140 -20 40 130 -30 95 1999 20 2000 Employment -40 1999 120 2000 Fiscal Impulse* Jan. 1999 = 100 Percent of GDP 106 Euro Area Japan Canada 104 Canada 3 2 France 1 102 0 Germany 100 Japan 1999 98 2000 -1 1999 2000 *Change in the structural deficit. CPI Inflation 2001 2002 Real GDP Growth 4-quarter percent change 4 Percent change, SAAR* 3 Canada 2000 H1 H2 2001 2002 2 Euro Area 1. Indust. countries** 4.5 2.6 2.4 3.0 2. Euro Area 3.4 2.2 2.8 3.0 3. Japan 5.4 -1.2 0.9 1.2 4. Canada 5.0 3.9 2.3 3.4 5. United Kingdom 2.9 3.0 2.5 2.5 1 0 Japan -1 1999 2000 2001 2002 -2 *Years are Q4/Q4; half years are either Q2/Q4 or Q4/Q2. **U.S. nonagricultural export weights. -2 Chart 15 External Outlook Oil Prices Real Exchange Rate Dollars per barrel Current WTI 1998Q1 = 100 35 30 Broad dollar 25 June Greenbook WTI 110 105 20 15 100 10 1998 1999 2000 2001 2002 5 U.S. Import Prices Core goods* Total 2000 2001 2002 95 2001 2002 1999 2000 2001 2002 4 0 -8 2000 Percent change, Q4/Q4 8 -4 1999 1999 Real Export Growth Percent change, SAAR 1998 1998 -12 Growth of real exports 1. G & S 4.3 7.2 6.0 Percentage point contribution 2. Services 0.1 0.4 1.2 3. Goods 4.2 6.8 4.8 of which: 4. Core* 2.3 4.0 2.7 9.9 1.9 8.0 3.9 *Excludes computers, semiconductors, and agriculture. *Excludes computers, semiconductors, and oil. Contribution to U.S. Real GDP Growth Real Import Growth Percent change, Q4/Q4 1999 2000 2001 2002 Percentage points, Q4/Q4 2 Exports Imports 1 Growth of real imports 1. G & S 12.0 11.4 4.1 8.2 0 Percentage point contribution 2. Services 0.4 1.9 0.2 3. Goods 11.6 9.5 3.9 of which: 4. Core* 9.5 7.0 1.8 *Excludes computers, semiconductors, and oil. 0.8 7.4 -1 4.1 1999 2000 2001 2002 -2 Chart 16 ECONOMIC PROJECTIONS FOR 2001 FOMC Range Central Tendency Staff -------------Percentage change, Q4 to Q4-----------Nominal GDP 3½ to 5¼ 4 to 5 July 2000 (5 to 6¼) Real GDP 2 to 3¼ 2 to 2½ July 2000 (2½ to 4) (3¼ to 3¾) 1¾ to 2½ 1¾ to 2¼ (1¾ to 3) (2 to 2½) PCE Prices July 2000 3.8 (5½ to 6) 1.8 1.8 --------------Average level, Q4, percent--------------- Unemployment rate July 2000 4¼ to 5 About 4½ (4 to 4½) (4 to 4¼) 5.2 Central tendencies calculated by dropping high and low three from ranges. 1/30-31/01 195 APPENDIX 3 “Material for Staff Presentation on Monetary Policy Alternatives.” STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC Material for Staff Presentation on Monetary Policy Alternatives January 31, 2001 Chart 4 Alternative Supply-Side Scenarios Real Federal Funds Rate1 Nominal Federal Funds Rate Percent Percent 7.0 6.5 Percent 7.0 Baseline (chart 1) 4 Percent NAIRU Productivity Slowdown Percent 5.5 5.5 Baseline (chart 1) 4 Percent NAIRU Productivity Slowdown 6.5 5.0 6.0 6.0 4.5 4.5 5.5 5.5 4.0 4.0 5.0 5.0 3.5 3.5 4.5 4.5 3.0 3.0 4.0 2.5 4.0 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 5.0 2004 2005 2.5 Civilian Unemployment Rate Percent Percent 7 7 Baseline (chart 1) 4 Percent NAIRU Productivity Slowdown 6 6 5 5 4 4 3 2000 2001 2002 2003 2004 3 2005 PCE Inflation (ex. food and energy) (Four-quarter percent change) Percent Percent 2.5 2.5 Baseline (chart 1) 4 Percent NAIRU Productivity Slowdown 2.0 2.0 1.5 1.5 1.0 1.0 0.5 2000 2001 2002 2003 1. The real federal funds rate is calculated as the quarterly nominal funds rate minus the four-quarter percent change in the PCE chain-weight price index excluding food and energy. 2004 2005 0.5 Chart 5 Alternative Demand-Side Scenarios Real Federal Funds Rate1 Nominal Federal Funds Rate Percent Percent 7.0 Percent Percent 7.0 5.5 6.5 5.0 6.0 6.0 4.5 4.5 5.5 5.5 4.0 4.0 5.0 5.0 3.5 3.5 4.5 4.5 3.0 3.0 4.0 2.5 Baseline (chart 1) Recession Growth Pause 6.5 4.0 2000 2001 2002 2003 2004 2005 5.5 Baseline (chart 1) Recession Growth Pause 2000 2001 2002 2003 5.0 2004 2005 2.5 Civilian Unemployment Rate Percent Percent 7 7 Baseline (chart 1) Recession Growth Pause 6 6 5 5 4 4 3 2000 2001 2002 2003 2004 3 2005 PCE Inflation (ex. food and energy) (Four-quarter percent change) Percent Percent 2.5 2.5 Baseline (chart 1) Recession Growth Pause 2.0 2.0 1.5 1.5 1.0 1.0 0.5 2000 2001 2002 2003 1. The real federal funds rate is calculated as the quarterly nominal funds rate minus the four-quarter percent change in the PCE chain-weight price index excluding food and energy. 2004 2005 0.5
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