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June 25-26, 2002 Appendix 1: Materials used by Mr. Kos 130 of 179 Page 1 June 25-26, 2002 Rates Implied by Eurodollar Futures Curve Comparison of March 19, May 6, & June 24, 2002 Percent 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 131 of 179 Percent 6.5 6 March 19, 2002 5.5 -42 bps May 6, 2002 -43 bps 5 -45 bps -52 bps -43 bps 4.5 -60 bps June 24, 2002 -70 bps 4 -74 bps 3.5 -65ps 3 -39ps 2.5 2 Source: Bloomberg 1.5 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Eurodollar Deposit Futures Implied Volatility (December contract) Percent March 1, 2002 to June 24, 2002 Percent 40 40 38 38 36 36 34 34 32 32 30 28 30 Source: Bloomberg 3/1 Percent 3.8 3/15 28 3/29 4/12 4/26 2 -Year Treasury Yield March 1, 2002 - June 24, 2002 5/10 Percent 5/24 6/7 6/21 10 -Year Treasury Yield March 1, 2002 - June 24, 2002 Percent 3.8 5.7 3.5 3.5 5.4 5.4 3.2 3.2 5.1 5.1 2.9 2.9 4.8 4.8 2.6 4.5 2.6 FOMC 3/19 FOMC 5/7 Source: Bloomberg 3/1 3/11 3/21 3/31 4/10 4/20 4/30 5/10 5/20 5/30 6/9 6/19 FOMC 3/19 FOMC 5/7 Source: Bloomberg 3/1 3/11 3/21 3/31 4/10 4/20 4/30 5/10 5/20 5/30 6/9 6/19 5.7 4.5 Page 2 June 25-26, 2002 132 of 179 U.S. Dollar Versus Selected Foreign Currencies Index Index March 1, 2002 - June 24, 2002 3/1/2002=100 3/1/2002=100 102 FOMC 3/19 100 102 FOMC 5/7 Canadian Dollar 100 British Pound 98 96 Yen 98 96 Euro 94 94 Swiss Franc 92 90 92 88 3/1 3/15 90 Australian Dollar Source: Bloomberg 3/29 4/12 4/26 5/10 5/24 88 6/7 6/21 1- month Euro-Dollar and Dollar-Yen Exchange Rate Option Implied Volatility Percent March 1, 2002 to June 24, 2002 Percent 12 12 Euro-dollar 10 10 8 8 Dollar-yen Source: Bloomberg 6 3/1 3/15 6 3/29 6 4/26 5/10 5/24 6/7 6/21 Global 10-yr. Government Bond Yields Percent 7 4/12 As of June 24, 2002 Percent Source: Bloomberg 5 4 3 2 1 0 1.31 4.80 4.92 4.95 5.01 5.09 5.17 5.34 5.40 6.00 6.51 Japan U.S. Germany U.K. France Spain Italy Canada Sweden Australia New Zealand Page 3 June 25-26, 2002 Index 3/1/02=100 110 133 of 179 Domestic Equities Index 3/1/02=100 110 March 1, 2002 - June 24, 2002 FOMC 3/19 106 FOMC 5/7 106 102 Dow 98 102 S&P 500 98 94 94 90 90 Nasdaq 86 82 86 82 Source: Bloomberg 78 3/1 78 3/11 3/21 3/31 4/10 4/20 4/30 5/10 5/20 5/30 6/9 6/19 S&P 100 Volatility Index (VIX) Percent Percent March 1, 2002 - June 24, 2002 34 34 FOMC 3/19 32 FOMC 5/7 32 30 30 28 28 26 26 24 24 22 22 20 20 Source: Bloomberg 18 3/1 3/11 Index 3/1/02=100 115 110 18 3/21 3/31 4/10 4/20 4/30 5/10 5/20 5/30 International Equities FOMC 3/19 FOMC 5/7 Bolsa 110 Nikkei 100 105 100 FTSE 95 90 80 6/19 Index 3/1/02=100 115 March 1, 2002 - June 24, 2002 105 85 6/9 95 Swiss Market Index 90 German DAX 85 Source: Bloomberg 3/1 3/11 80 3/21 3/31 4/10 4/20 4/30 5/10 5/20 5/30 6/9 6/19 Page 4 June 25-26, 2002 134 of 179 Domestic Credit Spreads to Comparable Treasuries March 1, 2002 to June 24, 2002 Basis points Basis points 200 80 80 10-Year Fannie Mae Benchmark 70 70 4/23/02 WCOM downgrade to Baa2 180 140 10-Year US Interest Rate Swaps Source: Bloomberg 40 3/1 50 40 3/15 3/29 4/12 4/26 5/10 5/24 6/7 180 140 30-yr. Fannie Mae Current Coupon MBS 120 100 160 5/9/02 WCOM downgrade to High Yield 60 50 5/29/02 ATT downgrade to Baa2 A-1 Industrial Corporate 160 60 Basis points 200 Source: Bloomberg 100 3/1 3/15 3/29 4/12 4/26 5/10 5/24 6/21 120 6/7 6/21 U.S. Corporate High Yield, EMBI+ and the Brazilian Sub-Component March 1, 2002 to June 24, 2002 Basis points Basis points 1600 1600 Brazilian Sub-component of the JP Morgan EMBI+ Sovereign Spread 1300 1300 1000 1000 JP Morgan EMBI+ Sovereign Spread 700 700 Merrill Lynch High Yield Spread Source: Bloomberg 400 400 3/1 3/15 3/29 4/12 4/26 5/10 5/24 6/7 6/21 Page 5 June 25-26, 2002 $ Billions 135 of 179 Currency Component of M1 (excludes vault cash) Seasonally Adjusted $ Billions December 2001 - December 2002 650 650 640 640 Current Estimates (10% growth through September, 8% growth through December) 630 630 620 620 610 Estimates as of the May FOMC meeting (9% growth over forecast period) Actuals 600 610 600 590 590 580 580 570 570 12/1 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1 Total Outright Purchases and Net Soma Expansion 1996 - 2002 $ Billions 80 70 Net Portfolio Expansion $ Billions 80 Purchases to Offset Redemptions 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 1996 1997 1998 1999 2000 2001 2002 Current Forecast June 25-26, 2002 Appendix 2: Materials used by Mr. Rolnick 136 of 179 June 25-26, 2002 137 of 179 June 25-26, 2002 138 of 179 June 25-26, 2002 139 of 179 June 25-26, 2002 140 of 179 June 25-26, 2002 141 of 179 June 25-26, 2002 142 of 179 June 25-26, 2002 143 of 179 June 25-26, 2002 144 of 179 June 25-26, 2002 145 of 179 June 25-26, 2002 146 of 179 June 25-26, 2002 147 of 179 June 25-26, 2002 148 of 179 June 25-26, 2002 149 of 179 June 25-26, 2002 150 of 179 June 25-26, 2002 151 of 179 June 25-26, 2002 152 of 179 June 25-26, 2002 153 of 179 June 25-26, 2002 Appendix 3: Materials used by Mr. Roberts and Mr. Lebow 154 of 179 June 25-26, 2002 Material for Board Staff Presentation on Explaining Low Inflation Since the Mid-1990s Division of Research and Statistics June 25, 2002 155 of 179 June 25-26, 2002 156 of 179 June 25-26, 2002 157 of 179 Exhibit 2 The FRB/US Model of Inflation Dynamics • • Bt = $ Bt-1 + (1-$) Bte - ( (Ut - Utn) + relative price shocks + unit labor costs B = rate of price inflation Be = expected rate of price inflation U = unemployment rate Un = natural rate of unemployment $, ( = coefficients B e reflects knowledge of the structure of the economy, including the conduct of monetary policy. • How do our factors fit in this model? < Changes in the conduct of monetary policy alter the influence of U on B e. < Changes in labor productivity growth affect inflation through unit labor costs. < Labor market developments shift U n. • Movements of (U - U n) explain about 20 percent of the variation of year-to-year changes in inflation. June 25-26, 2002 158 of 179 June 25-26, 2002 159 of 179 June 25-26, 2002 160 of 179 June 25-26, 2002 161 of 179 June 25-26, 2002 Appendix 4: Materials used by Mr. Stockton, Mr. Oliner, and Ms. Johnson 162 of 179 June 25-26, 2002 163 of 179 June 25-26, 2002 164 of 179 June 25-26, 2002 165 of 179 June 25-26, 2002 166 of 179 June 25-26, 2002 167 of 179 June 25-26, 2002 168 of 179 June 25-26, 2002 169 of 179 June 25-26, 2002 170 of 179 June 25-26, 2002 171 of 179 June 25-26, 2002 172 of 179 June 25-26, 2002 173 of 179 June 25-26, 2002 174 of 179 June 25-26, 2002 175 of 179 June 25-26, 2002 176 of 179 June 25-26, 2002 177 of 179 June 25-26, 2002 178 of 179 June 25-26, 2002 179 of 179
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