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June 17–18, 2014 Authorized for Public Release Appendix 1: Materials used by Ms. Logan and Mr. Potter 257 of 302 June 17–18, 2014 Authorized for Public Release Class II FOMC – Restricted (FR) Material for Briefing on Financial Developments and Open Market Operations Lorie Logan and Simon Potter June 17, 2014 258 of 302 June 17–18, 2014 Authorized for Public Release 259 of 302 Class II FOMC – Restricted (FR) Exhibit 1 (1) Domestic Asset Performance Since Apr '14 FOMC Changes in Basis Points 2-Year Nominal 10-Year Nominal 5-Year 5-Year BEI Primary Mortgage Rate* HY Corp. Credit OAS Changes in Percent S&P 500 Index DXY Dollar Index** (2) Nominal Five-Year, Five-Year Forward Rates Since Dec '13 FOMC Percent 5.0 +1 -9 -3 -13 -7 +3.1 +1.0 +13 -23 -6 -22 -68 +8.7 +0.7 May '13 JEC Percent Apr '14 FOMC 3.5 4.5 3.0 4.0 3.5 2.5 Dec '13 FOMC 3.0 2.5 01/01/13 *FHLMC 30-year survey rate. Weekly. **Positive value indicates Dollar appreciation. Source: Bloomberg, Barclays 2.0 07/01/13 01/01/14 Source: Bloomberg (3) Factors Contributing to Decline in Nominal Five-Year, Five-Year Forward Treasury Rate* Importance U.S. (LHS) U.K. (LHS) Germany (RHS) Dealer Average Dealer Interquartile Range Buy Side Average (4) Longer Run Federal Funds Target Forecasts Dec '13 Survey Jun '14 Survey Number of Dealers 12 5 10 4 8 3 6 2 4 1 2 U.S. U.S. Reserve U.S. Other MarketLonger Related Growth Accum- Inflation Outlook Run Fed AFE Funds Outlook Factors Outlook ulation Outlook Uncertainty *Decline from 12/31/13 to 06/09/14. Responses are expressed in terms of importance of each factor, where 1 is not important and 5 is very important. Source: Federal Reserve Bank of New York 0 <3.00 3.00 3.25 3.50 3.75 4.00 4.25 4.50 4.75 5.00 Federal Funds (Percent) Source: Federal Reserve Bank of New York (5) Implied Federal Funds Rate Path* Percent 2.0 1.5 1.0 0.5 PPTS BPS 90 80 70 60 50 40 30 20 10 0 350 300 250 200 150 100 50 0 Equities 06/30/15 06/30/16 Current Average 12/17/13 06/13/14 Median Mar '14 SEP Forecast 2.5 0.0 06/30/14 (6) Distribution of Implied Volatility* 06/30/17 *Derived from federal funds futures and Eurodollar futures. Source: Bloomberg, Federal Reserve Bank of New York, Federal Reserve Board of Governors Currencies Short Rates Long Rates *VIX, 1-month CVIX, 1-month 2-year swaption-implied volatility, and 1month 10-year swaption-implied volatility used for equities, currencies, short rates and long rates, respectively. Daily data since June 1994. Boxes show interquartile ranges and medians; whiskers show max and min values. Source: Bloomberg, Barclays June 17–18, 2014 Authorized for Public Release 260 of 302 Class II FOMC – Restricted (FR) Exhibit 2 (7) Factors Contributing to Declines in Implied Volatility* (8) Risk Asset Performance Importance High Yield Corporate Credit OAS EM Bond Index Spread BPS Dealer Average Dealer Interquartile Range Buy Side Average 550 5 500 4 450 400 3 350 2 HY OAS 2005-2007 Average 300 1 Investor Reach-ForYield Behavior Low Levels of Realized Volatility Reduced Global Reduced Global C.B. Reaction Econ. Outlook Uncertainty Uncertainty *Decline from September 2013 to 06/09/14. Responses are expressed in terms of importance of each factor, where 1 is not important and 5 is very important. Source: Federal Reserve Bank of New York 250 200 06/01/13 Since May '14 ECB Changes in Basis Points Italian 10-Year Spread to Germany Spanish 10-Year Spread to Germany -18 -16 -13 -20 Changes in Percent EuroStoxx 50 Index EuroStoxx Bank Index FTSE MIB Index (Italian Equities) IBEX Index (Spanish Equities) Euro-Dollar* +1.4 +2.6 +2.5 +3.3 -0.4 +3.9 +4.6 +4.4 +6.7 -2.7 *Negative value indicates Euro depreciation. Source: Bloomberg 12/01/13 03/01/14 06/01/14 (10) Forward Euro-Area Inflation Swaps One-Year, One-Year Two-Year, One-Year Five-Year, Five-Year Percent 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 06/01/13 Oct '13 EuroArea Flash CPI 09/01/13 12/01/13 May '14 ECB 03/01/14 06/01/14 Source: Barclays (11) EONIA Forwards (12) Overnight Euro Repo Offer Rates* One-Year, One-Year Three-Month, Three-Month Percent 09/01/13 Source: Barclays, J.P. Morgan, Bloomberg (9) Peripheral European Asset Performance Since Jun '14 ECB EM Spread 2005-2007 Average BPS May '14 ECB 0.6 0.5 German Collateral French Collateral 40 May '14 ECB Jun '14 ECB 30 0.4 20 0.3 10 0.2 0 0.1 0.0 06/01/13 09/01/13 Source: Bloomberg 12/01/13 03/01/14 06/01/14 -10 01/01/14 02/01/14 03/01/14 04/01/14 05/01/14 06/01/14 *Median of dealer quotes offered to the Desk. Source: Federal Reserve Bank of New York June 17–18, 2014 Authorized for Public Release 261 of 302 Class II FOMC – Restricted (FR) Exhibit 3 (13) SOMA Euro Portfolio Asset Allocation (Percent) Cash Official Deposits BIS Two-Days' Notice BIS Time Deposit Deutsche Bundesbank Banque de France RRPs Securities Held Outright Benchmark Pre-Jun '14 ECB Current* 0.0 12.4 11.0 2.5 20.0 15.0 12.5 17.5 32.5 2.6 19.6 3.0 12.5 17.5 32.5 2.6 25.8 3.0 22.4 2.8 32.5 Current Duration Internal Duration Limit Maximum Authorized Duration (14) Overnight GC Repo Rates BPS 9.4 Months 12.0 Months 18.0 Months *Includes unsettled positions as of 06/16/14. Source: Federal Reserve Bank of New York 16 300 250 200 150 100 50 0 -50 -100 -150 11/01/13 12 10 8 6 4 2 0 11/01/13 03/01/14 03/01/14 05/01/14 (16) TDF Participation and Allotment Prior Test Allotment (LHS) Current Test Allotment (LHS) Number of Participants (RHS) $ Billions 90 80 70 60 50 40 30 20 10 0 05/20/13 05/01/14 *Since 09/23/13. Source: Federal Reserve Bank of New York, U.S. Treasury Department Apr '14 Survey Jun '14 Survey 03/10/14 05/19/14 45 40 35 30 25 20 15 10 5 0 06/09/14 (18) Thirty-Year Fannie Mae Production Coupon Option-Adjusted Spreads BPS 16 14 12 10 8 6 4 2 0 11/18/13 Number of Participants Source: Federal Reserve Board of Governors (17) Expected Number of Months Between End of MBS Reinvestments and Liftoff* Number of Respondents 01/01/14 Source: Bloomberg, Federal Reserve Bank of New York ON RRP Allotment Cumulative Bill Supply* 01/01/14 Apr '14 FOMC 14 (15) Change in Treasury Bill Supply and Overnight RRP Allotment $ Billions Treasury GCF Repo Index Rate ON RRP Rate 40 Dec '13 FOMC 3.5% 4.0% Apr '14 Dudley FOMC Speech 35 30 25 20 >6 At >6 4–6 1–3 1–3 4–6 Mos. Mos. Mos. Liftoff Mos. Mos. Mos. Prior Prior Prior After After After No End *Based on all responses from the Survey of Primary Dealers and Survey of Market Participants. Source: Federal Reserve Bank of New York 15 10 5 11/01/13 Source: Barclays 01/01/14 03/01/14 05/01/14 June 17–18, 2014 Authorized for Public Release 262 of 302 Class II FOMC – Restricted (FR) Exhibit 4 (Last) (19) Daily Brokered Federal Funds and Eurodollar Volumes* (20) Daily Brokered Federal Funds and Eurodollar Effective Rates* Federal Funds Eurodollar $ Billions 250 0.25 Federal Funds 2007 Average 200 Spread Federal Funds Eurodollar Percent 0.20 0.15 150 0.10 100 0.05 50 0.00 0 03/25/10 03/25/11 03/25/12 03/25/13 03/25/14 03/25/11 03/25/12 03/25/13 03/25/14 *Eurodollar data collected beginning March 2010. Source: Federal Reserve Bank of New York *Eurodollar data collected beginning March 2010. Source: Federal Reserve Bank of New York (21) ON RRP Counterparty Breakdown Number Share of Allotment* Government Money Funds 32 60% Prime Money Funds 62 25% Primary Dealers 22 7% Government Sponsored Enterprises 6 6% Depository Instutions 18 2% Total 140 Memo: Est. Additional Capacity 140 Counterparty Type -0.05 03/25/10 *Share of total allotment since introduction of $10 billion cap on 04/07/14. Source: Federal Reserve Bank of New York (23) Counterparty Expansion Recommendations • Open new wave in July for firms that meet current eligibility criteria. • Anticipate approx. 25 MMMFs -- roughly evenly split between Gov’t and Prime -- and a few FHLBs. • If ON RRP is part of normalization strategy, accept new counterparties on a rolling basis. (22) Counterparty Expansion Options • Option 1: Defer decision. • Option 2: Add more counterparties of the current types. • Option 3: Admit new types of firms. • Option 4: Prune the existing counterparty list. June 17–18, 2014 Authorized for Public Release Appendix 2: Materials used by Ms. Weinbach, Mr. Natalucci, and Ms. Leonard 263 of 302 June 17–18, 2014 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on the Monetary Policy Normalization Deborah Leonard, Fabio Natalucci, Gretchen Weinbach June 17, 2014 264 of 302 June 17–18, 2014 Class I FOMC - Restricted Controlled (FR) Authorized for Public Release Exhibit 1 Apparent areas of common ground from your April discussion • Use ON RRPs in addition to IOER to help control short-term interest rates Limit take-up of ON RRPs in some fashion • Do not further reduce trading in federal funds Have an appreciable spread between the IOER and ON RRP rates, at least initially • Mixed views regarding term tools; use as needed • Preserve flexibility about the longer-run framework • Develop an expanded measure of the federal funds rate • Inform public about updated normalization plans at time of the September meeting Key design issue Do you want to set and communicate the stance of policy primarily by targeting the federal funds rate (or an expanded version), or by emphasizing the ON RRP and IOER rates? Target federal funds rate (or similar rate) • • Familiar Helps leave open longer-run use Point target? May be easiest to understand May provide clearer signal Desk adjusts ON RRP rate; an untested approach Might need to tolerate volatility around target Or target range? Point target may be hard to hit Fixed IOER-ON RRP rate spread But what if funds rate moves outside its desired range? 1 of 5 265 of 302 Jun. 17, 2014 June 17–18, 2014 Class I FOMC - Restricted Controlled (FR) Authorized for Public Release 266 of 302 Exhibit 2 Primarily emphasize ON RRP and IOER rates • Also point to federal funds rate? • Greater leeway to take no action if rates move outside of expected range Pointing to the funds rate would probably reduce that leeway • But administered rates might need to be adjusted Other trade-offs • Efficacy of chosen approach will depend on how tightly take-up of ON RRPs is limited • The more take-up is limited, the less the ON RRP facility can be expected to be effective • This trade-off has implications for: Your decisions about your communications strategy The effectiveness of monetary policy transmission 2 of 5 Jun. 17, 2014 June 17–18, 2014 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 267 of 302 June 17, 2014 Exhibit 3 Addressing Financial Stability Concerns Associated with an ON RRP Facility: Design Features and Other Mitigants Caps on Usage Features of Caps • Focus on caps as circuit breakers during a • Two main possibilities: period of market stress Individual caps for each ON RRP counterparty • Not intended to limit take-up under normal Aggregate cap conditions G Could be accompanied by a Expected to bind only rarely market-based pricing mechanism • Designed to • Additional features for both cap types: Prevent a disruptive surge in take-up and loss of private short-term funding Rigid or flexible Provide policymakers with some time to assess conditions Static or dynamic Assessing Design Features Two Possible Options • A number of issues to consider • Individual rigid caps Example: Caps set each month to average take-up in previous month plus $1 to $5 billon • Focus on three considerations: 1. How to balance two policy goals: G Controlling disruptive surges in take-up • Aggregate rigid cap G Setting an effective floor on rates Example: Aggregate cap set each week to average take-up in previous week plus $50 to $300 billion 2. Ease of implementation and burden on counterparties 3. Communication issues G Accompanied by a uniform-rate auction Further Considerations • The wide range for additive factors reflects the difficulty of evaluating uncertain tradeoffs between two policy goals • The Committee may want to consider: Setting caps that bind occasionally Imposing an ultimate limit on facility usage • The Committee may face pressures if circuit breakers are "tripped" May want to consider whether additional actions to mitigate strains would be warranted 3 of 5 June 17–18, 2014 Authorized for Public Release 268 of 302 Exhibit 4 Reinvestment Options Sequence from June 2011 Exit Strategy Significant Changes since June 2011 • Cease or reduce reinvestments • Increased securities holdings and excess reserves • Modify forward guidance • Elimination of short-dated Treasury holdings • Initiate temporary reserve draining operations • Changes in forward guidance • Raise federal funds target • Indication of no agency MBS sales to normalize • Sell agency securities • Development of ON RRPs for interest rate control Effects of Ending Reinvestments • Under baseline expectations, ending reinvestments 6m before, at, or 18m after liftoff has limited effects on: - Term premium estimates - Timing of liftoff - Macroeconomic outcomes - Remittances to the Treasury Strategies for Timing an End to Reinvestments • Before liftoff • After liftoff - Trigger or threshold, possibly related to: • Interest rate target • Economic conditions • Time • Coincident with liftoff • Models do not account for possible flow effects - May have some weight in MBS market USD, billions 80 Monthly • Partial reinvestment options Baseline Projection for Runoff of SOMA Securities MBS Treasury Securities Agency Debt 70 60 50 40 30 20 10 0 Notes: June 2014 Tealbook Book B Alternative B balance sheet scenario (runoff begins at liftoff). MBS based on prepayment estimates. Source: Federal Reserve Bank of New York 4 of 5 June 17–18, 2014 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) 269 of 302 June 17, 2014 Appendix 1. During normalization, do you want to communicate the stance of policy primarily by targeting the federal funds rate (or an expanded measure of the overnight bank funding rate), or to emphasize administered rates such as the ON RRP and IOER rates? a. If the Committee continues to target the federal funds rate or a similar rate during normalization, do you think a point target or a target range would be preferable? b. If the Committee communicates the stance of policy using the ON RRP and IOER rates, should it also use and point to the federal funds rate or a similar rate as one indicator of the general level of overnight interest rates? 2. Which types of “circuit breakers” for limiting the financial stability risks that could be posed by a fixed-rate, full allotment ON RRP program do you find most promising? In addition to the circuit breakers, do you see an overall limit on the size of the ON RRP program (other than the limit imposed by the size of the SOMA portfolio) as desirable? 3. Do you think that the Committee should cease or reduce its reinvestment of principal on its securities holdings prior to, at the same time as, or after the first increase in short-term interest rates? Should the Committee simply cease reinvestment at the appropriate time, or would a more graduated approach be preferable? 4. Assuming, as discussed in one of the staff memos, that the Federal Reserve constructs an expanded federal funds effective rate that includes Eurodollar transactions as well as federal funds transactions, do you think that the expanded rate should be published as a substitute for the existing federal funds effective rate or as an additional benchmark rate? 5 of 5 June 17–18, 2014 Authorized for Public Release Appendix 3: Materials used by Mr. Rudd and Ms. Wilson 270 of 302 June 17–18, 2014 Authorized for Public Release 271 of 302 Class II FOMC – Restricted (FR) Material for Staff Presentation on the Economic and Financial Situation Jeremy Rudd, Beth Anne Wilson June 17, 2014 June 17–18, 2014 Authorized for Public Release Exhibit 1 Class II FOMC - Restricted (FR) Near-Term Developments 5. Near-Term Outlook (Quarterly percent changes or percentage point contributions at annual rate) 2013 2014 Q4 Q1e Q2f Q3f 1. Real GDP 2. June TB 3. Apr. TB 2.6 -2.1 (-1.5) (0.7) 4.3 (4.2) (3.5) 3.5 (3.5) (3.4) 4. PDFP 5. June TB 6. Apr. TB 3.2 1.5 (2.2) (2.3) 3.9 (3.9) (4.0) 3.9 (4.0) (4.7) .0 -.3 .5 -.2 7. Weather effect (pp.) e: Staff estimate. f: Staff forecast. Page 1 of 9 272 of 302 June 17–18, 2014 Authorized for Public Release 273 of 302 Exhibit 2 Class II FOMC - Restricted (FR) Medium-Term Outlook 2. Sources of GDP Revisions since December Factors revising up 2014-16 GDP growth: • Upward revisions to wealth • Momentum from stronger 2013 Factors revising down 2014-16 GDP growth: 3. Potential GDP Growth (Percent change. Q4 over Q4) 2014 2015 2016 1. June TB 1.3 2. December TB (2.2) Memo: 3. Revision (pp.) -.9 1.7 1.9 (2.1) -.4 -.2 • Higher exchange value of the dollar • Lower potential output growth June 17–18, 2014 Authorized for Public Release 274 of 302 Exhibit 3 Class II FOMC - Restricted (FR) Labor Market 1. Change in Nonfarm Payroll Employment* Thousands of employees 400 May 2. Unemployment Rate* Percent 10 400 June TB December TB 10 200 9 0 8 8 -200 -200 7 7 -400 -400 6 6 -600 5 -800 4 -1000 3 200 0 Unemployment rate (pct.) Feb. Mar. Apr. May 6.7 6.7 6.3 6.3 -600 -800 -1000 2008 2009 2010 2011 2012 2013 2014 *Three-month moving average. Actual Trend** 67 65 65 64 64 63 63 May 2009 2012 2010 2011 2013 2014 2015 2016 Percent 65 Actual Trend** 64 66 2008 4 2012 2013 2014 62 64 63 62 62 61 61 60 60 59 May 58 57 57 56 56 55 2008 2009 2010 2011 2012 2013 2014 5. Part Time for Economic Reasons 6. Labor Compensation Actual Predicted* 9 10 6 9 5 8 8 7 7 6 6 Percent change from year earlier Comp. per hour (P&C) Employment cost index Average hourly earnings* 4 3 Q1 May Q1 5 1 3 0 0 2 -1 4 3 2008 2009 2010 2011 2012 2013 2014 *Based on the historical relationship with the unemployment gap; 2014:Q2 uses staff gap forecast. 2 1 4 2 6 4 2 May 55 5 3 5 59 58 *Adjusted to account for changes in population weights. **Adjusted for effect of EUC and extended benefit programs. Percent of employment 65 63 *Adjusted to account for changes in population weights. **Adjusted for effect of EUC and extended benefits programs. 10 3 4. Employment to Population Ratio* Percent 66 62 5 Natural Rate** *Gray shaded area gives 70% confidence interval based on FRB/US stochastic simulations. **Adjusted for effect of EUC and extended benefit programs. 3. Labor Force Participation Rate* 67 9 2008 2009 *All employees. Page 3 of 9 2010 2011 2012 2013 2014 -1 June 17–18, 2014 Authorized for Public Release Exhibit 4 Price Inflation 1. Near-Term PCE Inflation (Percent change, annual rate) 2013 Q4 2014 Q1e Q2f Q3f 1.1 1.4 2.0 1.5 (1.1) (1.5) (1.6) (1.7) 1. Total 2. April TB 1.3 3. Core 4. April TB 1.2 1.8 1.5 e: Staff estimate. f: Staff forecast. 5. Estimates of Underlying Inflation* (Percent change, annual rate) Point est.** Range*** 1. Phillips curve (Michigan) 2. Phillips curve (SPF) 1.8 1.5 1.7 to 2.0 1.4 to 1.7 3. Stock-Watson 4. Cogley-Sargent 1.3 1.4 1.0 to 1.5 1.1 to 1.7 5. TVP-SV VAR 1.8 1.1 to 2.5 *For lines 1 and 2, underlying inflation is defined as the rate that would obtain in the absence of economic slack and other shocks and if the current level of longer-run inflation expectations were maintained. “Based on core PCE price index. ***70 percent confidence interval or credible set. Page 4 of 9 275 of 302 June 17–18, 2014 Authorized for Public Release 276 of 302 Exhibit 5 Class II FOMC - Restricted (FR) 2. Real GDP 1. Real GDP* Percent change, a.r. Percent change, a.r. 2013 H2 2015f 2014 Q1e Q2f 2016f EME 6 5 H2f 4 1. Total Foreign 2.9 2.1 2.5 3.2 3.2 3.3 2.9 2.3 2.7 3.2 3.2 3.3 Emerging Market Economies 3.8 Of which: China 8.4 2.2 3.3 4.2 4.3 4.4 5.5 6.2 7.5 7.2 7.1 April Tealbook 2. 3. 4. 5. Emerging Asia ex. China Mexico 4.5 2.2 2.5 1.1 3.6 2.5 4.3 3.4 4.4 3.6 4.4 3.7 6. Brazil 0.3 0.7 1.2 2.1 2.5 2.7 13 Percent change 118 2 1 0 2011 4. China Industrial Production Jan. 2011 = 100 $ Billions 3 -1 * GDP aggregates weighted by shares of U.S. merchandise exports. e: Staff estimate. f: Staff forecast. 3. EME Indicators AFE 2013 2015 5. China Property Prices* Percent change, a.r. 2.0 14 12 12 112 EME exports* 1.5 10 106 11 May Apr. 8 1.0 6 100 10 0.5 4 94 9 2 0.0 Apr. 8 Taiwan high-tech export orders 88 -2 82 7 2011 2012 2013 0 -0.5 -1.0 2014 2012 2013 2014 6. Consumer Confidence -4 2012 2013 * 70-city property price index. 2014 7. EME Financial Indicators Jan. 2007 = 100 120 12 $ Billions Weekly 110 Basis points EMBI+ sovereign spread 400 8 350 4 Brazil 100 0 May 300 90 -4 Mexico 250 80 70 2007 2009 2011 2013 -8 Flows to EME-dedicated funds -12 2012 Source: EPFR. Page 5 of 9 200 2013 2014 June 17–18, 2014 Authorized for Public Release 277 of 302 Exhibit 6 Class II FOMC - Restricted (FR) 1. Real GDP* Percent change, a.r. 2013 1. Advanced Foreign Economies 2014 2015f 2016f H2 Q1e Q2f H2f 2.0 2.0 1.7 2.2 2.1 2.2 Of which: 2. Japan 0.8 6.7 -4.5 1.9 0.7 1.1 3. Euro Area 0.8 0.7 1.6 1.4 1.8 1.9 4. Canada 2.9 1.2 3.1 2.6 2.6 2.6 5. United Kingdom 3.1 3.3 2.9 2.9 2.6 2.5 * GDP aggregates weighted by shares of U.S. merchandise exports. e: Staff estimate. f: Staff forecast. 3. Euro-Area GDP (2014Q1) 2. Size of BOJ’s Balance Sheet Percent of GDP Start of QQE Percent change, a.r. 80 GE 70 SP 60 2 Euro-area average FR IT PO GR 4 NE 0 50 -2 40 -4 30 20 2011 2012 2013 2014 4. Euro-Area Bank Lending* Billions of euros 2015 -6 2016 5. Unemployment Rate Percent 80 60 40 Euro area ex. Germany 0 -20 -40 * Loans adjusted for sales and securitization. 12-month percent change 5 4 Euro area ex. Germany 12 3 10 2 8 Germany 1 Germany 6 -60 -80 2010 2011 2012 2013 2014 16 14 20 To households To nonfinancial corporations 6. Inflation 0 4 2005 2007 2009 2011 2013 Page 6 of 9 -1 2005 2007 2009 2011 2013 June 17–18, 2014 Authorized for Public Release 278 of 302 Exhibit 7 Class II FOMC - Restricted (FR) 2. Inflation Outlook 1. Policy Rates Percent United Kingdom Four-quarter percent change 6 5 5 4 United Kingdom 4 3 3 Canada 2 2 Euro area Canada 1 1 Japan* Euro area 0 0 Japan -1 2008 2010 2012 2014 -1 2011 2016 2012 2013 2014 2015 2016 * Excluding the effects of the April 2014 and October 2015 tax hikes. 3. Output Gaps* 4. Fiscal Impulse Percent United Kingdom Canada Euro area Japan Contribution to growth, pp. 4 U.K. Canada Euro area Japan 2 0 2.0 1.5 1.0 0.5 -2 0.0 -4 -0.5 -6 -1.0 -8 -1.5 -10 2008 2010 2012 2014 Avg. 2010- 2013 2012 2016 * (Level of actual GDP - potential GDP) as a share of potential GDP. 5. Corporate Loan Spreads Percentage points 6. Household Debt Spain* United Kingdom 5 2015 2016 7. Investment Around 2008 Recession Percent of GDP 6 -2.0 2014 110 Indexed to peak* 108 Canada 100 100 Italy* 4 90 3 80 2 70 Japan 92 Euro area 84 Germany* Canada Euro area 1 United Kingdom** United Kingdom 0 2000 2004 2008 76 60 2012 * Rate on 1-5 year loans under €1 million relative to 5-year German bunds. ** Rate on 1-5 year loans relative to 5-year U.K. gilts. 50 2000 2004 2008 Page 7 of 9 2012 -3 yrs Peak 3 yrs * Pre-recession investment peak. 6 yrs 68 June 17–18, 2014 Authorized for Public Release 279 of 302 Exhibit 8 Class II FOMC - Restricted (FR) 2. 1-Year Forward Rates 9-Years Ahead* 1. 10-Year Sovereign Yields Percent United Kingdom Percent 3.2 5.5 United States 5.0 United States 2.8 4.5 Canada United Kingdom 2.4 4.0 Canada Germany 2.0 3.5 Germany 1.6 3.0 1.2 Jul Sep 2013 Nov Jan Mar 2.5 Jul May 2014 Sep 2013 Nov Jan Mar * Derived from zero-coupon yield curve. May 2014 4. Potential GDP* 3. Long-term Rates and Growth Q4/Q4 percent change 5 Mean: 1997-2005 Fall in long rates may reflect: o Reassessment of potential growth, o Lower equilibrium interest rates. 4 3 One mitigating factor: o Foreign potential growth higher. Total foreign** Potential growth is slowing in AFE and some EME countries. U.S. Average growth Foreign U.S. 1997-05 2.9 3.1 2013-25 3.4 1.9 But increasing weight on EMEs keeps foreign potential growth high. 1990 1995 2000 1 2005 2010 * Using nominal GDP weights. ** Excluding Russia. 5. Potential GDP* 2 2015 2020 0 2025 6. Share of World GDP* Q4/Q4 percent change Mean: 1997-2005 Percent 7 60 6 50 5 EME** Average growth AFE EME 1997-05 2.0 5.2 2013-25 1.4 5.5 AFE EME 40 4 3 30 2 U.S. AFE 20 1 1990 1995 2000 2005 * Using nominal GDP weights. ** Excluding Russia. 2010 2015 2020 0 2025 10 1993 Page 8 of 9 1998 2003 2008 * Using nominal GDP weights. 2013 2018 2023 June 17–18, 2014 Authorized for Public Release 280 of 302 Exhibit 9 (Last) Class II FOMC - Restricted (FR) 1. Mitigating Factor - Less Savings Glut 2. Global Current Account Balances Percent of world GDP Stat. discrepancy and other** Pre-crisis, CA surplus countries exported savings to U.S. o Put downward pressure on U.S. interest rates 1 Savings glut countries* Going forward, less negative pressure 2 AFE ex Japan 0 o Declining oil prices United States o Rebalancing in Asia -1 - Appreciating ER - Lower CA surpluses -2 1996-99 2000-03 2004-07 2008-11 2012-16 * China, Japan, Middle East, Africa, and other EME Asia. ** Statistical discrepancy, Latin America, Eastern Europe, and former USSR. 3. Outlook for Imported Oil Prices 4. Real Dollar U.S. dollar per barrel 2008Q1 = 100 130 115 110 110 AFE 105 90 100 70 Broad 95 50 90 EME 30 2008 2010 2012 2014 2016 5. EME SIGMA Simulation: U.S. Net Exports Percent of GDP 85 2008 2010 2012 2014 2016 6. EME SIGMA Simulation: Federal Funds Rate Percent 0.0 -0.5 Stronger EME Growth 5 4 -1.0 Stronger EME Growth 3 -1.5 Baseline 2 -2.0 Baseline 1 -2.5 -3.0 2014 2015 2016 2017 0 2014 2018 Page 9 of 9 2015 2016 2017 2018 June 17–18, 2014 Authorized for Public Release Appendix 4: Materials used by Ms. Wei 281 of 302 June 17–18, 2014 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on the Summary of Economic Projections Min Wei June 17, 2014 282 of 302 June 17–18, 2014 Authorized for Public Release 283 of 302 Exhibit 1. Central tendencies and ranges of economic projections, 2014–16 and over the longer run Percent Change in real GDP 4 Central tendency of projections Range of projections 3 2 1 + 0 - Actual 2009 2010 2011 2012 2013 2014 2015 2016 Longer run Percent Unemployment rate 10 9 8 7 6 5 2009 2010 2011 2012 2013 2014 2015 2016 Longer run Percent PCE inflation 3 2 1 2009 2010 2011 2012 2013 2014 2015 2016 Longer run Percent Core PCE inflation 3 2 1 2009 2010 2011 2012 2013 2014 Note: The data for the actual values of the variables are annual. Page 1 of 5 2015 2016 Longer run June 17–18, 2014 Authorized for Public Release 284 of 302 Exhibit 2. Economic projections for 2014–16 and over the longer run (percent) Change in real GDP Central Tendency . . . . . . . . . March projection . . . . . . Range . . . . . . . . . . . . . . . . . . . . . March projection . . . . . . Memo: Tealbook . . . . . . . . . . March projection . . . . . . 2014H1 1.0 to 1.2 2.4 to 2.5 0.4 to 1.4 2.1 to 2.8 1.3 2.5 2014H2 3.1 to 3.6 3.1 to 3.3 3.0 to 3.6 2.1 to 3.6 3.5 3.4 2014 2.1 to 2.3 2.8 to 3.0 1.9 to 2.4 2.1 to 3.0 2.4 2.9 2015 3.0 to 3.2 3.0 to 3.2 2.2 to 3.6 2.2 to 3.5 3.0 3.2 2016 2.5 to 3.0 2.5 to 3.0 2.2 to 3.2 2.2 to 3.4 3.2 3.0 Longer run 2.1 to 2.3 2.2 to 2.3 1.8 to 2.5 1.8 to 2.4 2.0 2.3 Unemployment rate Central Tendency . . . . . . . . . March projection . . . . . . Range . . . . . . . . . . . . . . . . . . . . . March projection . . . . . . Memo: Tealbook . . . . . . . . . . March projection . . . . . . 2014 6.0 to 6.1 6.1 to 6.3 5.8 to 6.2 6.0 to 6.5 6.0 6.2 2015 5.4 to 5.7 5.6 to 5.9 5.2 to 5.9 5.4 to 5.9 5.4 5.6 2016 5.1 to 5.5 5.2 to 5.6 5.0 to 5.6 5.1 to 5.8 5.0 5.1 Longer run 5.2 to 5.5 5.2 to 5.6 5.0 to 6.0 5.2 to 6.0 5.2 5.2 PCE infation Central Tendency . . . . . . . . . March projection . . . . . . Range . . . . . . . . . . . . . . . . . . . . . March projection . . . . . . Memo: Tealbook . . . . . . . . . . March projection . . . . . . 2014H1 1.6 to 1.7 1.4 to 1.5 1.5 to 1.8 1.3 to 1.5 1.7 1.4 2014H2 1.3 to 1.7 1.6 to 1.7 1.3 to 2.2 1.3 to 2.2 1.4 1.6 2014 1.5 to 1.7 1.5 to 1.6 1.4 to 2.0 1.3 to 1.8 1.5 1.5 2015 1.5 to 2.0 1.5 to 2.0 1.4 to 2.4 1.5 to 2.4 1.4 1.5 2016 1.6 to 2.0 1.7 to 2.0 1.5 to 2.0 1.6 to 2.0 1.5 1.7 Longer run 2.0 2.0 2.0 2.0 2.0 2.0 Core PCE infation Central Tendency . . . . . . . . . March projection . . . . . . Range . . . . . . . . . . . . . . . . . . . . . March projection . . . . . . Memo: Tealbook . . . . . . . . . . March projection . . . . . . 2014H1 1.5 1.3 to 1.4 1.4 to 1.6 1.2 to 1.5 1.5 1.4 2014H2 1.5 to 1.7 1.4 to 1.7 1.3 to 2.0 1.2 to 2.2 1.4 1.6 * The changes in real GDP and infation are measured Q4/Q4. Page 2 of 5 2014 1.5 to 1.6 1.4 to 1.6 1.4 to 1.8 1.3 to 1.8 1.5 1.5 2015 1.6 to 2.0 1.7 to 2.0 1.5 to 2.4 1.5 to 2.4 1.6 1.7 2016 1.7 to 2.0 1.8 to 2.0 1.6 to 2.0 1.6 to 2.0 1.7 1.8 June 17–18, 2014 Authorized for Public Release 285 of 302 Exhibit 3. Overview of FOMC participants’ assessments of appropriate monetary policy Number of participants Appropriate timing of policy firming 12 June projections March projections 3 1 2014 2015 13 12 11 10 9 8 7 6 5 4 3 2 1 2016 Appropriate pace of policy firming Percent Target federal funds rate at year-end June projections 5 4 3 2 1 0 2014 2015 2016 Longer run Appropriate pace of policy firming Percent Target federal funds rate at year-end March projections 5 4 3 2 1 0 2014 2015 2016 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 federal funds rate from its current range of 0 to 1/4 percent will occur in the specified calendar year. In the middle and lower panels, each circle indicates the value (rounded to the nearest 1/4 percentage point) of an individual participant’s judgment of the appropriate level of the target federal funds rate at the end of the specified calendar year or over the longer run. Page 3 of 5 June 17–18, 2014 Authorized for Public Release 286 of 302 Exhibit 4. Scatterplot of unemployment and PCE inflation rates in the initial year of policy firming (in percent) PCE inflation 2.5 2.0 1.5 1.0 5.0 5.5 Unemployment Rate 6.0 Year of Firming 2014 2015 2016 Note: When the projections of two or more participants are identical, larger markers, which represent one participant each, are used so that each projection can be seen. Page 4 of 5 June 17–18, 2014 Authorized for Public Release 287 of 302 Exhibit 5. Uncertainty and risks in economic projections Number of participants Uncertainty about GDP growth 20 18 16 14 12 10 8 6 4 2 June projections March projections Lower Broadly similar Number of participants Risks to GDP growth 20 18 16 14 12 10 8 6 4 2 June projections March projections Higher Weighted to downside Broadly balanced Number of participants Uncertainty about the unemployment rate Lower Broadly similar 20 18 16 14 12 10 8 6 4 2 Number of participants Risks to the unemployment rate Higher Weighted to downside Broadly balanced Number of participants Uncertainty about PCE inflation Lower Broadly similar 20 18 16 14 12 10 8 6 4 2 Broadly balanced Number of participants Lower Broadly similar Weighted to upside Risks to PCE inflation Weighted to downside 20 18 16 14 12 10 8 6 4 2 20 18 16 14 12 10 8 6 4 2 Number of participants Higher Uncertainty about core PCE inflation Weighted to upside 20 18 16 14 12 10 8 6 4 2 Weighted to upside Number of participants Risks to core PCE inflation Higher Weighted to downside Page 5 of 5 Broadly balanced 20 18 16 14 12 10 8 6 4 2 Weighted to upside June 17–18, 2014 Authorized for Public Release Appendix 5: Materials used by Mr. English 288 of 302 June 17–18, 2014 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on Monetary Policy Alternatives Bill English June 17-18, 2014 289 of 302 June 17–18, 2014 Authorized for Public Release 290 of 302 Market Expectations and Policy Issues Projected Real GDP Growth Projected Unemployment Rate Percent 4.0 History and Staff Forecast Median Primary Dealer SEP Central Tendency Projected Total PCE Inflation Percent Percent 3.0 8 History and Staff Forecast Median Primary Dealer SEP Central Tendency History and Staff Forecast Median Primary Dealer SEP Central Tendency 3.5 2.5 7 3.0 2.0 6 2.5 1.5 5 2.0 1.0 1.5 4 2013 2014 2015 2016 Long Run 0.5 2013 2014 2015 2016 Long Run 2013 2014 2015 2016 Long Run Source: Primary Dealer Survey, SEP projections, and staff forecasts (all June 2014). Total Projected SOMA Security Holdings Median Dealer Purchase Expectations Billions of Dollars Billions of Dollars 50 April June 4500 Median PD: June Alternative B 40 4000 3500 30 3000 20 2500 10 2000 0 1500 June July Aug. Sept. 2014 Oct. Nov. Dec. Jan. 2015 2012 2014 2016 2018 2020 2022 2024 2026 Note: Projections assume no delay in MBS settlement. Source: June 2014 Primary Dealer Survey. Source: June 2014 Primary Dealer Survey. Median Expected Path of the Federal Funds Rate Projected Long Run Federal Funds Rate Percent Percent 4.0 April Primary Dealer June Primary Dealer April Buy-Side June Buy-Side 4.5 Staff Forecast Median Primary Dealer SEP Central Tendency 3.5 3.0 4.0 2.5 2.0 1.5 3.5 1.0 0.5 0.0 H2 2014 H1 H2 2015 H1 H2 2016 H1 H2 2017 3.0 H1 H2 2018 Source: June 2014 Primary Dealer and Buy-Side Surveys. Mar. 2013 Jun. 2013 Sep. 2013 Dec. 2013 Mar. 2014 Jun. 2014 Source: Primary Dealer Surveys and SEP projections. Page 1 of 13 June 17–18, 2014 Authorized for Public Release 291 of 302 APRIL FOMC STATEMENT 1. Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending appears to be rising more quickly. Business fixed investment edged down, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but 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 and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term. 3. The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in May, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $20 billion per month rather than $25 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 billion per month rather than $30 billion per month. 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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate. 4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases Page 2 of 13 June 17–18, 2014 Authorized for Public Release 292 of 302 in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. 5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to ¼ percent target range for the federal funds rate, 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 developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. 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. 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 June 17–18, 2014 Authorized for Public Release 293 of 302 FOMC STATEMENT—JUNE 2014 ALTERNATIVE A 1. Information received since the Federal Open Market Committee met in March April indicates that growth in economic activity has picked up in recently months, after having slowed sharply declined during the winter earlier in the year in part because of adverse weather conditions. Labor market indicators were mixed but on balance generally showed further improvement. The unemployment rate, however, remains elevated. Household spending appears to be rising moderately more quickly. and business fixed investment edged down is advancing, while but the recovery in the housing sector remained slowed further. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been continues to running well below the Committee’s longer-run objective, but even though 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 and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee anticipates that inflation will return to 2 percent, but only gradually; it recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term. 3. The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. However, in light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in May, surprisingly large fluctuations in economic growth in recent quarters and the resulting increase in uncertainty about the economic outlook, the Committee decided to maintain the current pace of its asset purchases while awaiting further information concerning the economic outlook, labor market conditions, and inflation. Thus, the Committee will continue to add to its holdings of agency mortgage-backed securities at a pace of $20 billion per month rather than $25 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 billion per month rather than $30 billion per month. 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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate. Page 4 of 13 June 17–18, 2014 Authorized for Public Release 294 of 302 4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly more clearly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. 5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to ¼ percent target range for the federal funds rate, 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 developments. The Committee continues to anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and at least as long as inflation between one and two years ahead is projected to be below 2 percent, provided that longer-term inflation expectations remain well anchored. 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. 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 June 17–18, 2014 Authorized for Public Release 295 of 302 FOMC STATEMENT—JUNE 2014 ALTERNATIVE B 1. Information received since the Federal Open Market Committee met in March April indicates that growth in economic activity has picked up rebounded in recently months, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators were mixed but on balance generally showed further improvement. The unemployment rate, however though lower, remains elevated. Household spending appears to be rising more quickly. moderately and business fixed investment edged down resumed its advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but 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 and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term. 3. The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in May July, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $20 $15 billion per month rather than $25 $20 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 $20 billion per month rather than $30 $25 billion per month. 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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate. 4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward Page 6 of 13 June 17–18, 2014 Authorized for Public Release 296 of 302 its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. 5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to ¼ percent target range for the federal funds rate, 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 developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. 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. 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 7 of 13 June 17–18, 2014 Authorized for Public Release 297 of 302 FOMC STATEMENT—JUNE 2014 ALTERNATIVE C 1. Information received since the Federal Open Market Committee met in March April indicates that growth in economic activity has picked up rebounded in recently months, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators were mixed but on balance showed broad further improvement. The unemployment rate, however, remains elevated. Payroll employment has strengthened and the unemployment rate has declined, but these and other measures, taken together, indicate that [ substantial ] underutilization of labor resources remains. Household spending appears to be has been rising more quickly. moderately and business fixed investment edged down accelerated, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below appears to be moving gradually toward the Committee’s longer-run objective, but and 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 and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will continue to move back toward its objective over the medium term. 3. The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in May July, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $20 $10 billion per month rather than $25 $20 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 $15 billion per month rather than $30 $25 billion per month. 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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate. 4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, Page 8 of 13 June 17–18, 2014 Authorized for Public Release 298 of 302 until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. 5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to ¼ percent target range for the federal funds rate, 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 developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. 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. 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 9 of 13 June 17–18, 2014 Authorized for Public Release 299 of 302 APRIL 2014 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. Beginning in May, the Desk is directed to purchase longer-term Treasury securities at a pace of about $25 billion per month and to purchase agency mortgage-backed securities at a pace of about $20 billion per month. 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 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 mortgagebacked securities in agency mortgage-backed securities. The System Open Market Account manager and the secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. Page 10 of 13 June 17–18, 2014 Authorized for Public Release 300 of 302 DIRECTIVE FOR JUNE 2014 ALTERNATIVE A 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. Beginning in April, The Desk is directed to purchase continue purchasing longer-term Treasury securities at a pace of about $25 billion per month and to purchase continue purchasing agency mortgage-backed securities at a pace of about $20 billion per month. 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 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 mortgagebacked securities. The System Open Market Account manager and the secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. Page 11 of 13 June 17–18, 2014 Authorized for Public Release 301 of 302 DIRECTIVE FOR JUNE 2014 ALTERNATIVE 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. Beginning in May July, the Desk is directed to purchase longer-term Treasury securities at a pace of about $25 $20 billion per month and to purchase agency mortgage-backed securities at a pace of about $20 $15 billion per month. 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 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 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 12 of 13 June 17–18, 2014 Authorized for Public Release 302 of 302 DIRECTIVE FOR JUNE 2014 ALTERNATIVE C 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. Beginning in May July, the Desk is directed to purchase longer-term Treasury securities at a pace of about $25 $15 billion per month and to purchase agency mortgage-backed securities at a pace of about $20 $10 billion per month. 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 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 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 13 of 13
@FedFRASER