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July 28–29, 2015 Authorized for Public Release Appendix 1: Materials used by Mr. Potter and Ms. Logan 216 of 265 July 28–29, 2015 Authorized for Public Release Class II FOMC – Restricted (FR) Material for Briefing on Financial Developments and Open Market Operations Simon Potter and Lorie Logan July 28, 2015 217 of 265 July 28–29, 2015 Authorized for Public Release 218 of 265 Exhibit 1 Class II FOMC – Restricted (FR) (1) U.S. Ten-Year Yield and S&P 500 Index Over Intermeeting Period* S&P 500 Index (LHS) Ten-Year U.S. Treasury Yield (RHS) Indexed to 06/16/15 (2) Intermeeting Changes in Treasury Yields Percent 2.5 102 101 2.4 FOMC-Related Top-Tier U.S. Data Other* Intermeeting Total BPS 30 20 10 100 2.3 99 98 2.2 97 1 2 3 4 2.1 5y 5y5y 10y 30y *Other includes days when there were large yield moves due to international developments in Greece and China. Source: Bloomberg (4) Market-Implied Cumulative Probability of Liftoff At or Before September Meeting* (3) Survey-Implied Probability Distribution of the Timing of Liftoff* 50 -30 2y (1) June FOMC statement released, (2) Greek referendum called, (3) Greek “no” vote, (4) Chinese equity volatility, (5) Greek agreement. Source: Bloomberg Dec '14 Survey Jun '15 Survey -10 -20 5 96 6/16/2015 6/24/2015 7/2/2015 7/13/2015 7/21/2015 Percent 0 Percent Mar '15 Survey Jul '15 Survey 80 40 Percent Survey Median 25th / 75th Percentile Max and Min Range 100 100 80 60 60 20 40 40 10 20 30 0 Jul 2015 Sep 2015 Oct 2015 Dec 2015 June FOMC 0 06/01/15 (5) Five-Year, Five-Year Breakeven Inflation and Oil* USD/Bbl. Percent 125 2.75 06/29/15 PR GO 10-Year (LHS) Muni AAA GO 10-Year (RHS) 12 Percent June FOMC 110 2.50 07/13/15 (6) Puerto Rico and Municipal Bond Rates Five-Year, Five-Year Breakeven (LHS) Brent Crude Oil (RHS) 0 06/15/15 *Based on responses from the July Survey of Primary Dealers and June Survey for Market Participants’ PDF-implied means for the EFFR immediately after liftoff. Probabilities are derived from October fed funds futures contract. Source: Bloomberg, Federal Reserve Bank of New York Desk Calculations *Average of all responses to the Survey of Primary Dealers and Survey of Market Participants. Probabilities may not add up to 100%. Source: Federal Reserve Bank of New York Percent 20 11 June FOMC 2.25 4 95 80 10 3 2.00 65 1.75 9 50 2 8 1.50 01/01/14 05/01/14 5 35 09/01/14 01/01/15 05/01/15 *Dashed line shows ten year average of 5Y5Y breakeven (LHS). Source: Federal Reserve Board of Governors, Bloomberg 7 07/01/14 1 10/01/14 Source: Thompson Reuters 01/01/15 04/01/15 07/01/15 July 28–29, 2015 Authorized for Public Release 219 of 265 Exhibit 2 Class II FOMC – Restricted (FR) Percent (8) Shanghai Composite Index* (7) Currencies and Commodities Over Intermeeting Period Indexed to 06/30/14 4 2 0 -2 -4 -6 -8 -10 Shanghai Composite Index Interest Rate and / or Targeted RRR Cut 250 200 150 DXY Industrial Metals Index* AUD NOK CAD *Bloomberg industrial metals index; composed of copper, aluminum, zinc, and nickel. Source: Bloomberg 100 07/01/14 (9) Offshore Renminbi and Implied Skew 2.2 1.7 Shanghai Composite Peak 04/01/15 07/01/15 Shanghai Composite Index Standard Offshore Renminbi / USD One-Year Implied PPTS Deviations 5 Skew** (RHS) 4.2 4 3.7 3 3.2 Offshore RMB 2.7 2 Depreciation 2600 2400 2200 2000 1800 1600 1400 1200 1000 07/01/14 01/01/15 (10) Standardized Intraday Trading Ranges* Offshore Renminbi 12 Month Forward (LHS) Pips* 10/01/14 *Shaded region indicates the Chinese authorities provided unconventional support to the equity market. Source: Bloomberg Italian Ten-Year Yield U.S. Ten-Year Yield June FOMC 1 0 1.2 01/01/15 07/01/15 *A “pip” is 1/100th of a cent. **Implied volatility for call options minus the implied volatility for put options with one year expiries and 25-deltas. Source: Bloomberg -1 07/01/11 (11) Ten-Year Peripheral Spreads to Germany Greece (LHS) Italy (RHS) Spain (RHS) PPTS 35 30 PPTS 6.5 20 07/01/14 07/01/15 Euro Spot (LHS) $ per € 4.5 07/01/13 (12) Euro-Dollar Spot and Five-Year, Five-Year Forward Inflation Swap Rate 5.5 1.4 25 07/01/12 *Standardized since 12/31/99, 30-day moving average. Source: Bloomberg 1.3 Euro-Area Five-Year, Five-Year Forward Inflation Swap Rate (RHS) Percent Greek Referendum Called 2.1 ECB QE Announcement 1.9 3.5 1.8 1.2 15 1.7 2.5 10 1.6 1.1 1.5 1.5 5 0 07/01/11 2.0 07/01/12 Source: Bloomberg 07/01/13 07/01/14 1.0 0.5 07/01/14 10/01/14 01/01/15 07/01/15 Source: Bloomberg, Barclays 1.4 04/01/15 07/01/15 July 28–29, 2015 Authorized for Public Release 220 of 265 Exhibit 3 Class II FOMC – Restricted (FR) (13) Central Bank Liquidity Swaps Outstanding ECB BoJ Maximum total outstanding since 2008 = $586 billion (14) Overnight Interest Rates* GCF Treasury Repo Rate Triparty ex. GCF Rate Effective Federal Funds Rate ON RRP Award Rate $ Billions 2.00 1.75 BPS 1.50 1.25 1.00 0.75 0.50 0.25 0.00 01/01/14 05/01/14 09/01/14 01/01/15 05/01/15 50 45 40 35 30 25 20 15 10 5 0 03/31/14 06/30/14 09/30/14 12/31/14 03/31/15 06/30/15 *Dark trip wires indicate quarter-ends, light trip wires indicate month-ends. Source: Federal Reserve Bank of New York, Bloomberg Source: Federal Reserve Bank of New York (15) June Term RRP Results (16) September Term RRP Announcement 06/25/15 06/29/15 7 2 Offered ($ Billions) 100 100 Bids ($ Billions) Accepted Submitted 100 116 100 104 Rates (BPS) Stop-out High Bid Low Bid 7 8 0 7 8 0 Maximum Bid Rate (BPS) 8 8 Term (Days) • Desk intends to release statement shortly after July minutes announcing: o Plan to offer at least $200 billion of term RRPs over September quarter-end Operation Date Maturity Date Term Amount Offered Max. Rate Sep 24 Oct 01 7 days TBA TBA Sep 30 Oct 02 2 days TBA TBA o Release of the remaining details shortly ahead of quarter-end Source: Federal Reserve Bank of New York (17) RRPs Outstanding and Foreign Repo Pool $ Billions 600 ON RRP Outstanding Term RRP Outstanding Foreign RP Pool (18) Change to Foreign RP Pool Terms of Service • o Remove individual targets and notification requirements 500 • Ensure consistent understanding across account-holders of RP pool service • Staff does not expect larger balances to have material impact on monetary policy implementation 400 300 o Could reintroduce individual targets or caps, or aggregate cap to manage any policy impact 200 100 0 03/31/14 Revise customer terms of service to align with current practice 08/07/14 12/17/14 Source: Federal Reserve Bank of New York 04/29/15 July 28–29, 2015 Authorized for Public Release Exhibit 4 (Last) Class II FOMC – Restricted (FR) (19) Treasury Bill Supply Cumulative Change* $Billions Actual Projected (20) MBS CUSIP Aggregation • Follow similar strategy and principles as 2011 aggregation • Purpose: 50 0 o Realize cost savings and operational benefits o Facilitate sales of MBS holdings, should Committee direct Desk to do so -50 -100 221 of 265 Current level = $1.43 trillion • Proposed Plan: -150 o Aggregate ~60,000 CUSIPs into ~350 new pools, representing face value of $1.27 trillion -200 01/01/15 o Release Desk statement and FAQs Friday following FOMC, start aggregation midAugust 04/01/15 07/01/15 10/01/15 *Projection period is 07/29/15 to 12/28/15. Assumes debt limit will be resolved around end Nov / early Dec.; bill issuance expected to resume there after. Source: U.S. Treasury, Federal Reserve Board of Governors July 28–29, 2015 Authorized for Public Release Appendix 2: Materials used by Ms. Logan and Mr. Clouse 222 of 265 July 28–29, 2015 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on Normalization Lorie Logan & James Clouse July 28, 2015 223 of 265 July 28–29, 2015 Authorized for Public Release 224 of 265 Class I FOMC – Restricted Controlled (FR) (1) Key Elements in Draft Liftoff Directive • Adds effective date as day following policy announcement • Clarifies description of ON RRP capacity under a suspended cap • Retains broad OMO authority, but adds specific instructions for ON and term RRPs (2) Comparison of Central Banks' Operating Frameworks Central Bank Frequency of Operations (Times/Year) Implementation of Policy Rate Decision BoE SNB PBoC BoJ RBA RBNZ Norges Bank ECB Riksbank Weekly* Daily Daily / Unknown Daily Daily Daily Daily Weekly** Weekly* Same Day Same Day Same Day Next Day Next Day Next Day Next Day Next Wed. Next Wed. *Weekly operations may be supplemented with daily fine-tuning operations. ** Weekly operations are supplemented with longer-term operations at various times. (3) Description of ON RRP Capacity Under Suspended Cap • Amounts “limited only by the value of Treasury securities held outright in the SOMA that are available for such operations” • The Desk’s operating statement would: o Explain derivation of the available amount o Note ~$2 trillion of Treasury securities will be available o Be posted following FOMC communications (4) Recommendations on Language Authorizing Conduct of OMOs • Strike phrase “seeks conditions in reserve markets” as objective of OMOs • Maintain broad instruction to Desk to undertake OMOs “as necessary” to keep the EFFR in target range, with addition of specific instructions to undertake ON and term RRPs Page 1 of 3 July 28–29, 2015 Authorized for Public Release 225 of 265 Implementation Note for July 2015 Alternative C Release Date: July 29, 2015 Actions to Implement Monetary Policy The Federal Reserve has taken the following actions to implement the monetary policy stance adopted and announced by the Federal Open Market Committee on July 29, 2015: • The Board of Governors of the Federal Reserve System voted [ unanimously ] to raise the interest rate paid on required and excess reserve balances to [ 0.50 ] percent, effective July 30,2015. • As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive: “Consistent with its statutory mandate, the Federal Open Market Committee seeks monetary and financial conditions that will foster maximum employment and price stability. In particular, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to % percent. Effective July 30, 2015, the Committee directs the Desk to undertake open market operations as necessary to maintain such conditions the federal funds rate in a target range of [ % to ] percent, including; fl) overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of [ 0.25 ] percent and in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations; and (2) term reverse repurchase operations as authorized in the resolution on term RRP operations approved by the Committee at its March 17-18, 2015, meeting, “The Committee directs the Desk to maintain its policy of continue rolling over maturing Treasury securities into new issues and its policy of to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions.” The System Open Market Account manager and the secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. More information regarding open market operations may be found on the Federal Reserve Bank ofNew York’s website. When this document is released to the public, the blue text will be a link to the relevant page on the FRBNY website. Page 2 of 3 July 28–29, 2015 • Authorized for Public Release 226 of 265 The Board of Governors of the Federal Reserve System voted [ unanimously ] to approve a[%] percentage point increase in the primary credit rate to[ 1.00] percent, effective July 30, 2015. In taking this action, the Board approved requests submitted by the Boards ofDirectors of the Federal Reserve Banks of.... This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve’s operational tools and approach used to implement monetary policy. Page 3 of 3 July 28–29, 2015 Authorized for Public Release Appendix 3: Materials used by Mses. Klee and Remache 227 of 265 July 28–29, 2015 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on SOMA Reinvestment Policy Beth Klee and Julie Remache July 28, 2015 228 of 265 July 28–29, 2015 Authorized for Public Release 229 of 265 Class I FOMC − Restricted Controlled (FR) Exhibit 1 Strategies and Outcomes Calendar−dependent strategy Description Pros Reinvestments cease at a set date following initial firming of federal funds rate Relatively straightforward Offers some certainty regarding SOMA path Committee could follow Con o Strict calendar−dependent o Conditional on macroeconomic conditions Inflexible, perhaps even with conditionality State−dependent strategy Pro Description Reinvestments cease based on economic conditions Might reduce the possibility of returning to the zero lower bound Committee could follow Cons o Quantitative state−dependent o Qualitative state−dependent Challenging to determine appropriate threshold or trigger, or to be sufficiently clear Less certainty about SOMA path SOMA Holdings Federal Funds Rate Billions of Dollars Percent Quarterly Monthly 5000 Tealbook Baseline Federal Funds Rate = 2% Tealbook Baseline Federal Funds Rate = 2% 4 4000 3 3000 2 2000 1 1000 0 2010 2015 2020 Source: H.4.1 Statistical Release and Staff Estimates. 2025 2017 2019 Source: Staff Estimates. 2021 2023 2025 July 28–29, 2015 Authorized for Public Release Class I FOMC − Restricted Controlled (FR) 230 of 265 Exhibit 2 Securities Flows Net Change in Privately Held Treasury Securities Billions of Dollars Annual Net Change in Privately Held Securities (Total minus SOMA) Net Projected Change in Privately Held Securities (Total minus SOMA) 2000 Treasury Issuance SOMA Redemptions Other Treasury Issuance SOMA Redemptions/Sales 1500 1000 500 0 SOMA Purchases Treasury Paydowns 1995 2000 2005 −500 2010 2015 2020 Source: Monthly Statement of the Public Debt, H.4.1 Statistical Release, Staff Estimates. Agency MBS Purchases and Paydowns Billions of Dollars Monthly Net MBS Flow Projected Net MBS Flow 100 Total Purchases 50 0 Total Paydowns 2009 2010 2011 2012 2013 2014 Source: Federal Reserve Bank of New York and Staff Estimates. −50 2015 2016 2017 2018 2019 2020 July 28–29, 2015 Authorized for Public Release Class I FOMC − Restricted Controlled (FR) 231 of 265 Exhibit 3 SOMA Maturities and Expectations Projected Receipts of Principal on SOMA Securities Billions of Dollars Monthly Treasury maturities Projected MBS paydowns 80 60 40 20 0 2016 2017 2018 2019 2020 Source: Monthly Statement of the Public Debt and Staff Estimates. Desk Surveys: Timing to End Reinvestments Desk Surveys: Expected Change to Reinvestment During Policy Normalization Percent Treasury MBS <=0 1−4 60 5−8 9−12 13−16 Months Relative to Liftoff Source: Desk Surveys of Dealers and Market Participants from July 21, 2015. Percent 70 Treasury MBS 70 60 50 50 40 40 30 30 20 20 10 10 0 0 Reinvestment Continuing in Full Ceased All at Once Phased Out Over Time Source: Desk Surveys of Dealers and Market Participants from July 21, 2015. July 28–29, 2015 Authorized for Public Release 232 of 265 Class I FOMC - Restricted Controlled (FR) Questions for Committee Discussion (1) Would you prefer to communicate the Committee’s approach to ending or beginning to phase out reinvestments by stating a calendar date, perhaps with economic conditionality, or by stating economic conditions that would make it appropriate to begin shrinking the balance sheet? a. If the Committee were to adopt a calendar-based approach, would you want to include some economic conditionality? If so, in what form? b. If the Committee were to adopt a state-dependent approach, would you prefer to link the initial change in reinvestments to a numeric value for a specific variable, or would you prefer a less specific approach? (2) Would you prefer to cease reinvestments all at once, or would you prefer to phase out reinvestments over time? a. Would you prefer taking the same approach for Treasury securities and for MBS, or should they be handled differently? b. If you prefer different treatment for Treasury securities and MBS, how should the approaches differ? Page 4 of 4 July 28–29, 2015 Authorized for Public Release Appendix 4: Materials used by Mr. Clark 233 of 265 July 28–29, 2015 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on Potential Enhancements to the Summary of Economic Projections Todd E. Clark July 28, 2015 234 of 265 July 28–29, 2015 Authorized for Public Release 235 of 265 Possible Enhancements to the Summary of Economic Projections Addition of median projections Revision of Figure 2 Later this year: a recommendation for fan charts to illustrate forecast uncertainty Median projections Current SEP content: o Table 1 and Figure 1: ranges and central tendencies for macroeconomic variables o Figure 2: dot plot for the federal funds rate o Figure 3: histograms for all variables Medians would improve communications o Provide a better measure of the collective view, in a more direct form o Standard and robust statistical measure of the center of a distribution o Publication would foster public use of the median as a summary of projections Proposed revisions to Table 1 and Figure 1: o Add columns with medians to Table 1 o Add funds rate to Table 1 as a memo item o Add thick red lines for medians to Figure 1 Recommended introduction: September 2015 o Minutes of the July meeting will report discussion of medians o Complete mock-ups of new materials to be circulated over intermeeting period Figure 2 Top panel reports histogram of liftoff years; bottom panel provides dot plot of funds rate projections Onset of normalization will make the top panel obsolete Dot plot warrants preservation o Has helped communicate policy at the zero lower bound o Likely to remain useful for policy communication Forecast uncertainty Adding fan charts to the SEP would help to communicate forecast uncertainty o Staff work to date: fan charts centered on median projections o Quantitative illustration would complement judgmental assessment o Fan charts likely to be more effective for communications than is the current SEP table of forecast RMSEs Concrete proposal to the Committee to come after the subcommittee resolves technical issues Page 1 of 4 July 28–29, 2015 Authorized for Public Release 236 of 265 Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments of appropriate monetary policy, March 2015 Percent Variable Median1 2016 2017 Longer run 2.5 2.2 2.0 2.7 2.3 2.2 Change in real GDP . . . . . . . . . . . . December projection . . . . . . . . . 2015 2.5 2.8 Unemployment rate . . . . . . . . . . . . . December projection . . . . . . . . . 5.2 5.3 5.0 5.1 5.0 5.0 PCE infation . . . . . . . . . . . . . . . . . . . December projection . . . . . . . . . 0.7 1.2 1.7 1.8 2.0 2.0 Core PCE infation4 . . . . . . . . . . . . December projection . . . . . . . . . 1.3 1.6 1.7 1.8 2.0 2.0 Memo: Appropriate policy path Federal funds rate . . . . . . . . . . . . . . . December projection . . . . . . . . . 0.6 1.1 1.9 2.5 3.1 3.6 2015 2.3 to 2.7 2.6 to 3.0 Central tendency2 2016 2017 2.3 to 2.7 2.0 to 2.4 2.5 to 3.0 2.3 to 2.5 5.0 5.2 5.0 to 5.2 5.2 to 5.3 4.9 to 5.1 5.0 to 5.2 2.0 2.0 0.6 to 0.8 1.0 to 1.6 3.8 3.8 Longer run 2.0 to 2.3 2.0 to 2.3 2015 2.1 to 3.1 2.1 to 3.2 Range3 2016 2017 2.2 to 3.0 1.8 to 2.5 2.1 to 3.0 2.0 to 2.7 4.8 to 5.1 4.9 to 5.3 5.0 to 5.2 5.2 to 5.5 4.8 to 5.3 5.0 to 5.5 4.5 to 5.2 4.9 to 5.4 4.8 to 5.5 4.7 to 5.7 4.9 to 5.8 5.0 to 5.8 1.7 to 1.9 1.7 to 2.0 1.9 to 2.0 1.8 to 2.0 2.0 2.0 0.6 to 1.5 1.0 to 2.2 1.6 to 2.4 1.6 to 2.1 1.7 to 2.2 1.8 to 2.2 2.0 2.0 1.3 to 1.4 1.5 to 1.8 1.5 to 1.9 1.7 to 2.0 1.8 to 2.0 1.8 to 2.0 1.2 to 1.6 1.5 to 2.2 1.5 to 2.4 1.6 to 2.1 1.7 to 2.2 1.8 to 2.2 0.6 to 1.1 0.6 to 1.9 1.6 to 2.6 1.9 to 3.4 2.6 to 3.8 3.1 to 4.0 0.1 to 1.6 0.1 to 1.9 0.4 to 3.8 0.4 to 4.0 2.0 to 4.0 2.0 to 4.2 3.5 to 3.8 3.5 to 4.0 Longer run 1.8 to 2.5 1.8 to 2.7 3.0 to 4.2 3.2 to 4.2 Note: Projections of change in real gross domestic product (GDP) and projections for both measures of infation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE infation and core PCE infation are the percentage rates of change in, respectively, the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the federal funds rate are the value (rounded to the nearest 1/8 percentage point) of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specifed calendar year or over the longer run. The December projections were made in conjunction with the meeting of the Federal Open Market Committee on December 16–17, 2014. 1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the average of the two middle projections. 2. The central tendency excludes the three highest and three lowest projections for each variable in each year. 3. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year. 4. Longer-run projections for core PCE infation are not collected. Page 2 of 4 July 28–29, 2015 Authorized for Public Release 237 of 265 Figure 1. Medians, central tendencies and ranges of economic projections, 2015–17 and over the longer run Percent Change in real GDP 4 Median of participants Central tendency of projections Range of projections 3 2 1 + 0 - Actual 2010 2011 2012 2013 2014 2015 2016 2017 Longer run Percent Unemployment rate 10 9 8 7 6 5 2010 2011 2012 2013 2014 2015 2016 2017 Longer run Percent PCE inflation 3 2 1 2010 2011 2012 2013 2014 2015 2016 2017 Longer run Percent Core PCE inflation 3 2 1 2010 2011 2012 2013 2014 2015 2016 2017 Longer run Note: Definitions of variables are in the general note to table 1. The data for the actual values of the variables are annual. July 28–29, 2015 Authorized for Public Release 238 of 265 Figure 2. Overview of FOMC participants’ assessments of appropriate monetary policy Number of participants Appropriate timing of policy firming 15 15 14 13 12 11 10 9 8 7 6 5 4 3 2 2 1 2015 2016 Percent Appropriate pace of policy firming: Midpoint of target range or target level for the federal funds rate 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2015 2016 2017 Longer run Note: In the upper panel, the height of each bar denotes the number of FOMC participants who judge that, under appropriate monetary policy, the first increase in the target range for the federal funds rate from its current range of 0 to 1/4 percent will occur in the specified calendar year. In December 2014, the numbers of FOMC participants who judged that the first increase in the target federal funds rate would occur in 2015, and 2016 were, respectively, 15, and 2. In the lower panel, each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. July 28–29, 2015 Authorized for Public Release Appendix 5: Materials used by Mr. Wilcox 239 of 265 July 28–29, 2015 Authorized for Public Release Class II FOMC – Restricted (FR) Material for The U.S. Outlook David W. Wilcox July 28, 2015 240 of 265 July 28–29, 2015 Authorized for Public Release 241 of 265 Forecast Summary Confidence Intervals Based on FRB/US Stochastic Simulations 1. Real GDP 2. Unemployment Rate Percent change, annual rate 10 July TB June TB 70% confidence interval 8 10 11 8 10 6 6 4 4 2 2 0 0 -2 -4 2013 2014 2015 2016 2017 Percent July TB June TB 70% confidence interval 9 11 10 9 8 8 7 7 6 6 5 5 Natural Rate with EEB* -2 4 -4 3 4 2013 2014 2015 2016 3 2017 *Effect of emergency unemployment compensation and state-federal extended benefit programs. 3. Output Gap Estimates 4. PCE Prices Percentage points 6 FRB/US EDO Tealbook 4 2 6 6 4 5 2 4 6 5 4 3 2 2 1 1 0 0 -6 -1 -1 -8 -2 -2 -10 -3 0 -2 -2 -4 -4 -6 -8 2007 2008 2009 2010 2011 2012 2013 2014 2015 July TB June TB 70% confidence interval 3 0 -10 Percent change, annual rate 2013 2014 2015 2016 -3 2017 Note: The shaded region is the 2-standard deviation band around the FRB/US output gap, reflecting only filtering uncertainty. 6. Beveridge Curve 5. PCE Prices Excluding Food and Energy Percent change, annual rate 5 July TB June TB 70% confidence interval 4 5 3.2 3 3 2.8 2 2 2.4 1 1 2.0 0 0 1.6 -1 1.2 2013 2014 2015 3.6 2015:Q2 ** 4 -1 Vacancy Rate* 3.6 2016 2017 3.2 2008:Q1 - 2015:Q1 2.8 2.4 2.0 2001:Q1 - 2007:Q4 1.6 3 4 5 6 7 8 9 Unemployment Rate (percent) * JOLTS job openings divided by labor force (percent). ** Average of April and May. Page 1 of 2 10 1.2 11 July 28–29, 2015 Authorized for Public Release 242 of 265 Key Economic Indicators for the September, October, and December FOMC Meetings (Percent change at annual rate, except as noted) June July Aug. Sept. Oct. Nov. Dec. 3‐month change 2.2 2.5 1.1 0.0 ‐0.4 0.1 0.9 12‐month change 0.2 0.2 0.2 0.1 0.1 0.3 0.7 3‐month change 1.5 1.5 1.4 1.4 1.3 1.3 1.2 12‐month change 1.2 1.2 1.3 1.3 1.2 1.3 1.4 Unemployment rate (percent) 5.3 5.3 5.3 5.3 5.2 5.2 5.2 Payroll employment (change in 000s) 223 223 218 213 210 205 200 Second Q2 estimate 2.4 Third Q2 estimate 2.4 Total PCE price index Core PCE price index Gross Domestic Product Available at: September meeting October meeting Second Q3 estimate 1.7 December meeting Notes: Values shown in the table are based on the July Tealbook projection. The August CPI will be released on the first day of the September FOMC meeting; the November CPI will be released on the first day of the December FOMC meeting. July 28–29, 2015 Authorized for Public Release Appendix 6: Materials used by Mr. Kamin 243 of 265 July 28–29, 2015 Authorized for Public Release Class II FOMC – Restricted (FR) Material for The International Outlook Steven B. Kamin July 28, 2015 244 of 265 July 28–29, 2015 Authorized for Public Release Class II FOMC - Restricted (FR) Exhibit 1 245 of 265 The International Outlook 1. Greek GDP 2. Euro-area GDP Percent change, annual rate Percent change, annual rate 15 June TB History and current forecast June TB 10 6 5 4 5 3 0 2 -5 1 -10 0 -15 -1 -2 -20 2006 2008 2010 2012 2014 2011 2016 2012 2013 2014 2015 2016 2017 Note: Shaded region represents the forecast period on all panels. 3. China: Future Growth Prospects 6000 Index level 4. Foreign GDP Percent change, annual rate Percent change, annual rate 15 Shanghai stock index 5000 6 June TB* June TB 5 Emerging market economies (EME) 12 4 4000 9 GDP 3 3000 Total 6 2 2000 3 1000 Advanced foreign economies (AFE) 0 0 2013 2014 2015 2016 1 2013 2017 2014 2015 2016 2017 * Reflects new trade weights. 5. Crude Oil Price Outlook USD per barrel Monthly June TB 6. Broad Real Dollar 2013:Q1 = 100 130 120 June TB* 120 110 115 100 Brent* 110 90 80 Dollar appreciation 70 105 60 100 50 40 2013 2014 2015 * Forecast updated through July 27. 2016 2017 95 2013 * Reflects new trade weights. Page 1 of 2 2015 2017 July 28–29, 2015 Authorized for Public Release Class II FOMC - Restricted (FR) Exhibit 2 246 of 265 The International Outlook (2) 7. Trade Model Background Forecasts based on: Estimated equations for: 1) Exported services 2) Exported noncomputer goods 3) Imported services 4) Imported noncomputer nonfuel goods -- 35+ year estimation period -- Using forecasted explanatory variables: - GDP (foreign for exports, U.S. for imports) - Trade-weighted exchange rates. Historical trends for: -- Trade in computers and semicondutors Judgmental forecasts for: -- Oil and natural gas imports (informed by Department of Energy Outlook) Model predicts a decline in the NX contribution of 1.7 percentage points over 3 years for a 10 percent dollar appreciation. 8. NX Contribution to Real GDP Growth Percent, Q4/Q4 Data Model Forecast Components: Dollar GDP (Home + Foreign) Oil 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 1980 1985 1990 1995 2000 2005 2010 2015 9. Broad Real Dollar January 1980 = 100 155 Quarterly 145 Dollar appreciation 135 125 115 105 95 85 1980 1985 1990 1995 2000 Page 2 of 2 2005 2010 2015 July 28–29, 2015 Authorized for Public Release Appendix 7: Materials used by Ms. Liang 247 of 265 July 28–29, 2015 Authorized for Public Release Class II FOMC – Restricted (FR) Material for Briefing on Financial Stability Developments Nellie Liang July 28, 2015 248 of 265 July 28–29, 2015 Authorized for Public Release Internal FR 249 of 265 Exhibit 1 July 27, 2015 Financial Stability Dealer Financing and Borrowing Regulatory Capital and HQLA Ratios Percent Billions of Dollars Billions of Dollars 1400 7000 Monthly Percent 6000 Quarterly Common Equity Tier 1 Ratio (LHS) HQLA* (RHS) Q1 12 Dealer Financing (LHS) Dealer Borrowing (LHS) Net Borrowing (RHS) 1200 5000 1000 4000 800 3000 600 2000 400 1000 200 24 10 20 8 16 6 12 4 8 2 4 0 0 2001 2003 2005 2007 2009 2011 2013 2015 0 0 2001 2003 2005 2007 2009 2011 2013 2015 Note: Prior to 2014:Q1, the numerator of the common equity tier 1 ratio is tier 1 common capital. Beginning in 2014:Q1 for advanced approaches BHCs and in 2015:Q1 for all other BHCs, the numerator is common equity tier 1 capital. * High Quality Liquid Assets for Standard LCR BHCs are those with total assets higher than or equal to $250 billion. Source: FR Y-9C and FR 2900. Note: Graph shows fixed income securities. The FR 2004 survey was revised effective April 1, 2013. Source: FR 2004C Five-Year CDS Premiums Runnable Money-Like Liabilities Basis Points Percentage of Nominal GDP 500 Monthly Quarterly Morgan Stanley Bank of America Goldman Sachs Citi JP Morgan Wells Fargo Unlimited deposit insurance ends Uninsured deposits* Repos MMFs Other** 400 140 120 100 300 80 200 60 40 July 24 100 20 Q1 0 2011 2012 2013 2014 2015 Source: Markit. 2005 2007 2009 2011 2013 2015 * Uninsured deposits equals total deposits less insured deposits. ** Includes Fed funds, VRDOs, CP, and cash collateral pools. Source: Call Reports, DTCC, Financial Accounts of the United States, ICI, JP Morgan Chase, M3 monetary aggregates, Risk Management Association, SIFMA. Secondary Market for Speculative-Grade Corporate Bonds 3.0 0 2003 Bond Mutual Fund Assets Share 21-day Moving Average Billions of Dollars 35 3000 Monthly Percent Bid Ask Spread (LHS) Share of Trades > $1 M (RHS) 2.5 30 25 2.0 Investment-Grade High-Yield Bank-Loan International Other June 2500 2000 1500 20 1000 1.5 June 30 15 500 10 1.0 0 2007 2009 2011 2013 2015 Note: *Only trades of bonds that have been issued for 60 days or more at the time of trading are included. Excluding 144a bonds. Source: FINRA, Mergent, Moody’s DRD. 2008 2009 2010 2011 2012 2013 2014 2015 Note: Excludes government bond funds. Source: Morningstar. July 28–29, 2015 Authorized for Public Release Internal FR 250 of 265 Exhibit 2 July 27, 2015 Financial Stability Corporate Bond Yields Leveraged Loan and High Yield Bond Issuance Percent Billions of Dollars Billions of Dollars Annual Rate Monthly Ten-year High Yield Ten-year BBB 17 15 1200 * 2200 High-yield Bonds (LHS) Leveraged Loans (LHS) 1000 Q2 Total Outstanding (RHS) 13 2000 Q1 800 1600 600 1200 400 800 5 200 400 3 0 11 9 7 + July +27 2000 2003 2006 2009 2012 2015 0 2004 2006 2008 2010 2012 2014 2015 + Denotes the latest daily observation. Source: Staff estimates of smoothed yield curves based on Merrill Lynch bond data. Note: * Staff estimate of 2015 total outstanding HY bonds and leveraged loans. Data includes bonds and loans to both financial and nonfinancial companies, unrated bonds and loans. Source: S&P LCD, Mergent FISD. Capitalization Rate and CMBS Issuance Forward Price-to-Earnings Ratios Percent Billions of Dollars Ratio 10 30 Annual Rate Capitalization Rate (LHS) CMBS (RHS) 9 Monthly S&P 500 Small Cap 2000 250 8 25 200 20 7 150 Q1 6 July 15 Q2 5 100 10 50 4 0 2003 2005 2007 2009 2011 2013 5 1985 2015 1990 1995 2000 2005 2010 2015 Note: Capitalization Rate is a 3-month moving average at origination for offices. Source: Commercial Mortgage Alert and RCA. Note: Forward Price-to-Earning based on expected earnings for twelve months ahead. Source: Thomson Reuters Financial, Yahoo Finance. Real Growth of Credit Market Debt Outstanding of the Private Nonfinancial Sector Nonfinancial Corporate Debt-to-Assets Ratio Percent 14 50 Quarterly Quarterly Four-Quarter Percent Change 10 High-yield and Unrated Firms All Firms 45 Q1 40 6 35 Q1 2 30 -2 25 -6 1980 1985 1990 1995 2000 2005 2010 2015 Note: The private nonfinancial sector includes households and nonfinancial businesses. Source: Financial Accounts of the United States. 20 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Compustat. July 28–29, 2015 Authorized for Public Release Appendix 8: Materials used by Mr. Laubach 251 of 265 July 28–29, 2015 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on Monetary Policy Alternatives Thomas Laubach July 28–29, 2015 252 of 265 July 28–29, 2015 Authorized for Public Release 253 of 265 Exhibit 1: Monetary Policy Expectations Liftoff Probability Distribution Implied by Federal Funds Futures Percent 2015−07−27 June FOMC Jul. Sept. Oct. Dec. Jan. 50 Average Probability Distribution of Timing of Liftoff July Survey June Survey 40 20 20 10 10 Jul. Sept. Oct. Dec. Jan. >=Mar. 0 2016 Source: CME Group and staff calculations. Source: FRBNY Primary Dealer Survery. Q4/Q4 2016 Core PCE Inflation Forecasts (Percent of Respondents) Q4 2016 Unemployment Gap Forecasts (Percent of Respondents) Percent July Survey Median 40 30 2016 June SEP Median 50 30 0 >=Mar. Percent Percent 50 July Survey 50 July Survey 40 40 June SEP Median 30 20 20 10 10 <=1.7 1.8−1.9 2.0−2.1 2.2−2.3 0 >=2.4 Source: FRBNY Primary Dealer Survey and June 2015 SEP. −0.8 to −0.6 to −0.4 to −0.2 to >= 0 −0.7 −0.5 −0.3 −0.1 Note: The unemployment gap was calculated using Q4 2016 unemployment forecasts and long run forecasts. Source: FRBNY Primary Dealer Survery and June 2015 SEP. Federal Funds Rate Projections Conditional Pace of Tightening First Year Following Liftoff Percent <= −0.9 Percent 3.5 Implied Federal Funds on July 27, 2015 July PD Survey Median Path SEP Median Projection 30 July Survey Median July Survey June Survey 3.0 0 50 40 2.5 30 2.0 1.5 20 1.0 10 0.5 0.0 2016 2017 2018 Note: The implied fed funds rate path is estimated using OIS quotes with a spline approach and a term premium of zero basis points. Source: Bloomberg, FRBNY Primary Dealer Survey, June 2015 SEP, and staff calculations. 0−50 51−100 101−150 151−200 >200 bps bps bps bps bps Note: The distribution is conditional on the target not returning to the zero lower bound. Source: FRBNY Primary Dealer Survery. Page 1 of 13 0 July 28–29, 2015 Authorized for Public Release 254 of 265 Exhibit 2: Alternatives A, B, and C Alternative B could become appropriate to lift off in September but sufficiently data dependent to avoid a deliberate shift in current probabilities the labor market continued to improve solid job gains and declining unemployment cumulative progress in labor market conditions important still need to see "some" further improvement assessment of current and expected inflation developments unchanged but energy prices have fallen back still need to be "reasonably confident that inflation will move back to 2 percent over the medium term" Alternative A policy normalization not likely to begin for some time risks to economic activity and the labor market to the downside risk of persistent below−target inflation inflation concerns emphasized stronger inflation criterion "prepared to use all tools" to raise inflation Alternative C economic conditions and the outlook consistent with lift off proposes language that might accompany the start of policy normalization indicate further appropriate adjustments expected add a sentence linking the overall stance of monetary policy to the funds rate update forward guidance for future target range adjustments "deviations from" objectives, or "economic conditions relative to" objectives option to retain intention to follow "balanced approach" retain expectation that the target rate will be below longer−run "normal" levels for some time add that the path might change and "will depend on the incoming data" Page 2 of 13 July 28–29, 2015 Authorized for Public Release 255 of 265 JUNE 2015 FOMC STATEMENT 1. Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely. 3. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress—both realized and expected— toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. 4. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. 5. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. Page 3 of 13 July 28–29, 2015 Authorized for Public Release 256 of 265 ALTERNATIVE A FOR JULY 2015 1. Information received since the Federal Open Market Committee met in April June suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while was solid and the unemployment rate remained steady declined. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely. However, in light of economic and financial developments abroad, the Committee continues to sees the risks to the outlook for economic activity and the labor market as nearly balanced tilted to the downside. Moreover, the Committee is concerned that inflation could run substantially below the 2 percent objective for a protracted period. 3. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress—both realized and expected— toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates judges that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident projects that inflation will move back to its reach 2 percent objective over the medium term within one to two years. 4. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. If inflation does not begin to rise soon, the Committee is prepared to use all of its tools as necessary to return inflation to 2 percent within one to two years. Page 4 of 13 July 28–29, 2015 Authorized for Public Release 257 of 265 5. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. Page 5 of 13 July 28–29, 2015 Authorized for Public Release 258 of 265 ALTERNATIVE B FOR JULY 2015 1. Information received since the Federal Open Market Committee met in April June suggests indicates that economic activity has been expanding moderately after having changed little during the first quarter in recent months. Growth in household spending has been moderate and the housing sector has shown some additional improvement; however, business fixed investment and net exports stayed soft. The pace of labor market continued to improve, with solid job gains picked up while the and declining unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished somewhat since early this year. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longerterm inflation expectations have remained stable. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely. 3. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress—both realized and expected— toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. 4. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. 5. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions Page 6 of 13 July 28–29, 2015 Authorized for Public Release 259 of 265 may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. Page 7 of 13 July 28–29, 2015 Authorized for Public Release 260 of 265 ALTERNATIVE C FOR JULY 2015 1. Information received since the Federal Open Market Committee met in April June suggests indicates that economic activity has been expanding moderately after having changed little during the first quarter in recent months. Growth in household spending has been moderate and the housing sector has shown some improvement continued to strengthen; however, business fixed investment and net exports stayed soft. The pace of labor market continued to improve, with solid job gains picked up while the and declining unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat shows an appreciable improvement in labor market conditions since early this year. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate adjustments in the stance of monetary policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward reaching levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation is anticipated to remain near its recent low level in the near term, but the Committee expects is reasonably confident that inflation to will rise gradually toward to 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely. 3. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate. In light of the considerable progress that has been achieved toward the attainment of the Committee’s objective of maximum employment, and the Committee’s expectation that inflation will rise, over the medium term, to its 2 percent objective, the Committee decided to raise the target range for the federal funds to ¼ to ½ percent. Even after this adjustment, the stance of policy remains highly accommodative and will continue to support a strong economy. 4. In determining how long to maintain this future adjustments of the target range, the Committee will assess progress—both realized and expected—toward [ deviations from | economic conditions relative to ] its objectives of maximum employment and 2 percent inflation [ , and will take a balanced approach to pursuing those objectives ]. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is Page 8 of 13 July 28–29, 2015 Authorized for Public Release 261 of 265 reasonably confident that inflation will move back to its 2 percent objective over the medium term. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. However, the actual path of the target for the federal funds rate will depend on the incoming data. 5. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. 6. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. Page 9 of 13 July 28–29, 2015 Authorized for Public Release 262 of 265 June 2015 Directive Consistent with its statutory mandate, the Federal Open Market Committee seeks monetary and financial conditions that will foster maximum employment and price stability. In particular, 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 undertake open market operations as necessary to maintain such conditions. The Committee directs the Desk to maintain its policy of rolling over maturing Treasury securities into new issues and its policy of reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions. The System Open Market Account manager and the secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. Page 10 of 13 July 28–29, 2015 Authorized for Public Release 263 of 265 Directive for July 2015 Alternatives A and B Consistent with its statutory mandate, the Federal Open Market Committee seeks monetary and financial conditions that will foster maximum employment and price stability. In particular, 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 undertake open market operations as necessary to maintain such conditions. The Committee directs the Desk to maintain its policy of rolling over maturing Treasury securities into new issues and its policy of reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions. The System Open Market Account manager and the secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. Page 11 of 13 July 28–29, 2015 Authorized for Public Release 264 of 265 Implementation Note for July 2015 Alternative C Release Date: July 29, 2015 Actions to Implement Monetary Policy The Federal Reserve has taken the following actions to implement the monetary policy stance adopted and announced by the Federal Open Market Committee on July 29, 2015: The Board of Governors of the Federal Reserve System voted [ unanimously ] to raise the interest rate paid on required and excess reserve balances to [ 0.50 ] percent, effective July 30, 2015. As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive: “Consistent with its statutory mandate, the Federal Open Market Committee seeks monetary and financial conditions that will foster maximum employment and price stability. In particular, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to ¼ percent. Effective July 30, 2015, the Committee directs the Desk to undertake open market operations as necessary to maintain such conditions the federal funds rate in a target range of [ ¼ to ½ ] percent, including: (1) overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of [ 0.25 ] percent and in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations; and (2) term reverse repurchase operations as authorized in the resolution on term RRP operations approved by the Committee at its March 17-18, 2015, meeting. “The Committee directs the Desk to maintain its policy of continue rolling over maturing Treasury securities into new issues and its policy of to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions.” The System Open Market Account manager and the secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. More information regarding open market operations may be found on the Federal Reserve Bank of New York’s website. When this document is released to the public, the blue text will be a link to the relevant page on the FRBNY website. Page 12 of 13 July 28–29, 2015 Authorized for Public Release 265 of 265 The Board of Governors of the Federal Reserve System voted [ unanimously ] to approve a [ ¼ ] percentage point increase in the primary credit rate to [ 1.00 ] percent, effective July 30, 2015. In taking this action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of…. This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve’s operational tools and approach used to implement monetary policy. Page 13 of 13
@FedFRASER