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March 13, 2012

Authorized for Public Release

Appendix 1: Materials used by Mr. Sack

188 of 213

March 13, 2012

Authorized for Public Release

Class II FOMC - Restricted FR

Material for

FOMC Presentation:
Financial Market Developments and Desk Operations
Brian Sack
March 13, 2012

189 of 213

Authorized for Public Release

March 13, 2012

190 of 213

Class II FOMC – Restricted FR
Indexed to
07/01/11

Exhibit 1

(1) Equity Prices and Treasury Yields

105

Percent

3.50

FOMC
S&P 500 (LHS)
10-Year Treasury Yield (RHS)

100

30

3.25

25

3.00

20

2.75

95

(2) Probability Distribution of First Increase
in Federal Funds Target Rate*
Percent
January Survey
March Survey

15

2.50
90

2.25

85
80
07/01/11

09/01/11

11/01/11

01/01/12

2.00

5

1.75

0

*Average probabilities from dealer responses.
Source: Federal Reserve Bank of New York Survey

(3) Macroeconomic Conditions That Would Prompt
First Rate Hike*

Unemployment
(Percent)

(4) Implied Volatility of Forward Interest Rates*
BPS/Year

140
September 2011 Survey
March 2012 Survey

8.5

H1 H2 H1 H2 H1 H2 H1 H2 H1  H2
2012 2012 2013 2013 2014 2014 2015 2015 2016 2016

1.50
03/01/12

Source: Bloomberg

9.0

10

Mid-2013
Guidance

Late-2014
Guidance

120

8.0
7.5

100

7.0
6.5

80

6.0
0.5

1.0

1.5

2.0

2.5

3.0

3.5

Headline PCE
(Percent)
*Median dealer estimate of unemployment rate for given inflation rate.
Source: Federal Reserve Bank of New York Survey

60
04/01/10

02/01/11

07/01/11

12/01/11

*Volatility of one-year rate derived from swaption expiring in three years.
Source: Bloomberg

(5) Term Premium for Ten-Year Treasury Yield*

(6) Breakeven Inflation Rates

Percent

Percent

2.0

3.6

FOMC

3.2

Average

1.5

09/01/10

2.8
1.0

2.4

0.5

2.0

0.0

1.6
1.2

-0.5

0.8
-1.0
01/01/97

01/01/01

01/01/05

*Estimate from Kim-Wright model.
Source: Federal Reserve Board of Governors

01/01/09

0.4
04/01/10

5-Year 5-Year Forward Rate
5-Year Rate
09/01/10

02/01/11

Source: Federal Reserve Board of Governors

07/01/11

12/01/11

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March 13, 2012

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Class II FOMC – Restricted FR

Exhibit 2

(7) Euro Area Excess Liquidity*
€ Billions

(8) 3-Month Libor-OIS Spreads
BPS

900
800
700
600
500
400
300
200
100
0
04/01/10

3-Year LTROs

09/01/10

02/01/11

07/01/11

12/01/11

*Excess reserves plus deposit facility balance at ECB, excluding fine-tuning
operation days.
Source: ECB

110
100
90
80
70
60
50
40
30
20
10
0
04/01/10

3-Year LTROs

Spain
Italy

800
700

09/01/10

02/01/11

07/01/11

12/01/11

(10) Bank Holdings of Euro Area
Sovereign Debt

€ Billions

900

Dollar-denominated

Source: Bloomberg

(9) Euro Area Sovereign Debt Spreads*
BPS

3-Year LTROs
Euro-denominated

350

Nov. 2011
Dec. 2011
Jan. 2012

300

600
250

500
400

200

300
200

150

100
0
04/01/10

09/01/10

02/01/11

07/01/11

12/01/11

*2-year spreads to Germany.
Source: Bloomberg

(11) Financial CDS Spreads

Indexed to
04/01/10

FOMC

MS
BAC
GS
JPM

500
400

Germany

France
Italy
Bank Country

Spain

Source: ECB

BPS

600

100

120
115

(12) Dollar Exchange Rates
USD-EUR
Broad Dollar Index
USD-JPY

110

FOMC

Dollar Appreciation

105
300

100

200

95
90

100
0
04/01/10

85
09/01/10

Source: Bloomberg

02/01/11

07/01/11

12/01/11

80
04/01/10

09/01/10

02/01/11

07/01/11

Source: Bloomberg, Federal Reserve Board of Governors

12/01/11

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Class II FOMC – Restricted FR

Exhibit 3

(13) Operations for Maturity Extension Program
(Through 03/12/12)

(14) Average Duration of SOMA
Portfolio Holdings

Years

7.0

Purchases

Sales

237.8
3.0
10.4
287.8

242.0
7.5
1.5
42.3

Par Amount ($ Bil.)
Bid-to-Cover (Median)
Duration (Years)
10-Year Equivalents ($ Bil.)

6.0
5.0
4.0
3.0
2.0

Treasuries
Overall SOMA
Agency MBS

1.0
0.0
01/01/06
Source: Federal Reserve Bank of New York

01/01/12

(16) MBS Purchases and Principal Paydowns
(Since Start of Reinvestments)

Percent

$ Billions

2-Year Treasury Yield
FOMC
Treasury Repo Rate
Federal Funds Rate
3-Month Treasury Bill Rate

0.5

01/01/10

Source: Federal Reserve Bank of New York

(15) Shorter-Term Interest Rates
0.6

01/01/08

80

Purchases
Paydowns

60
40

0.4

20
0.3

0

0.2

-20
-40

0.1

-60

0.0

-80

-0.1
07/01/11

2.5
09/01/11

11/01/11

01/01/12

3.0

3.5

4.5

5.0

6.0

Source: Federal Reserve Bank of New York

(17) MBS Option-Adjusted Spread to Treasury*

(18) Probability of Additional Policy Actions
Percent

BPS

80

80

FOMC

1-Year
Interquartile
Range

70

70

60
60

1-Year
Median

50

50

40

40

30
20

30

Current
Meeting
Median

10
20
03/01/11

5.5

Coupon
(Percent)

03/01/12

Source: Bloomberg, Federal Reserve Bank of New York

4.0

07/01/11

11/01/11

*Current coupon spread spliced with 3.5% coupon spread when
current coupon rate is below 3.5%.
Source: Barclays Capital

03/01/12

0
Reduce
IOER

Increase
SOMA
Duration

Change
Rate
Guidance

Increase
SOMA
Size

Source: Federal Reserve Bank of New York Survey

Change
SOMA
Guidance

March 13, 2012

Authorized for Public Release

Appendix 2: Materials used by Mr. Wascher

193 of 213

March 13, 2012

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Class II FOMC – Restricted (FR)

Material for

Forecast Summary

Bill Wascher
March 13, 2012

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Authorized for Public Release
Class II FOMC - Restricted (FR)

March 13, 2012

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Forecast Summary
Confidence Intervals Based on Tealbook Track Record

Real GDP
6
5

Unemployment Rate
Percent change, annual rate

March TB
January TB
70% confidence interval

6
5

4

4

3

3

2

2

1

1

0

2011

2012

2013

0

5

March TB
January TB
70% confidence interval

6

10

9

9

8

8

7

7

6

2011

2012

6

2013

Percent change, annual rate

4

March TB
January TB
70% confidence interval

5
4

3

3

2

2

1

4

3

3

2

2

1

1

1

2011

2012

2013

0

0

Percent change, annual rate
January TB

6

2011

2012

0

2013

Q4/Q4 Changes in Real GDP
and Unemployment since 1990

Real GDP Forecasts from the Factor Model
8

11

PCE Prices Excluding Food and Energy
Percent change, annual rate

4

0

March TB
January TB
70% confidence interval

10

PCE Prices
6

Percent

11

8

6

Q4/Q4 change in unemployment, p.p.

4

2009

2

4

2
2008

4

4

2010
0

2

2

0

-2

0

0

2011

2012

-2

2011

-2

-4

-4

Note: The blue shaded area encompasses the 68% confidence
interval.

-2

0

2

-2

4

Q4/Q4 percent change in real GDP

Page 1 of 1

6

-4

March 13, 2012

Authorized for Public Release

Appendix 3: Materials used by Mr. English

196 of 213

March 13, 2012

Authorized for Public Release

Class I FOMC – Restricted Controlled (FR)

Material for

FOMC Briefing on Monetary Policy Alternatives

Bill English
March 13, 2012

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Class I FOMC – Restricted Controlled (FR)

JANUARY FOMC STATEMENT
1.

Information received since the Federal Open Market Committee met in December
suggests that the economy has been expanding moderately, notwithstanding some
slowing in global growth. While indicators point to some further improvement in overall
labor market conditions, the unemployment rate remains elevated. Household spending
has continued to advance, but growth in business fixed investment has slowed, and the
housing sector remains depressed. Inflation has been subdued in recent months, 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 economic growth over coming
quarters to be modest and consequently anticipates that the unemployment rate will
decline only gradually toward levels that the Committee judges to be consistent with its
dual mandate. Strains in global financial markets continue to pose significant downside
risks to the economic outlook. The Committee also anticipates that over coming quarters,
inflation will run at levels at or below those consistent with the Committee's dual
mandate.

3.

To support a stronger economic recovery and to help ensure that inflation, over time, is at
levels consistent with the dual mandate, the Committee expects to maintain a highly
accommodative stance for monetary policy. In particular, the Committee decided today
to keep the target range for the federal funds rate at 0 to ¼ percent and currently
anticipates that economic conditions—including low rates of resource utilization and a
subdued outlook for inflation over the medium run—are likely to warrant exceptionally
low levels for the federal funds rate at least through late 2014.

4.

The Committee also decided to continue its program to extend the average maturity of its
holdings of securities as announced in September. The Committee is maintaining its
existing policies 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 will regularly review the
size and composition of its securities holdings and is prepared to adjust those holdings as
appropriate to promote a stronger economic recovery in a context of price stability.

Page 1 of 9

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Class I FOMC – Restricted Controlled (FR)

MARCH FOMC STATEMENT—ALTERNATIVE A
1.

Information received since the Federal Open Market Committee met in December
January suggests that the economy has been expanding moderately, notwithstanding
some slowing in global growth. While indicators point to some further improvement in
overall labor market conditions have improved somewhat further, the unemployment
rate remains elevated. Household spending and business fixed investment have
continued to advance. but growth in business fixed investment has slowed, and The
housing sector remains depressed. Inflation has been subdued in recent months, and
although prices of crude oil and gasoline have increased lately. 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, absent further policy
action, economic growth would slow over coming quarters to be modest and
consequently anticipates that the unemployment rate will would decline only gradually
toward levels that the Committee judges to be consistent with its dual mandate. Strains in
global financial markets continue to pose significant downside risks to the economic
outlook. The recent increase in oil and gasoline prices is likely to reduce consumers’
purchasing power while pushing up inflation temporarily. Nonetheless, the
Committee also anticipates that over coming quarters, subsequently inflation will run at
levels at or below those the rate that it judges most consistent with the Committee's its
dual mandate.

3.

To support a stronger economic recovery and to help ensure that inflation, over time, is at
levels the rate most consistent with the its dual mandate, the Committee expects to
maintain a highly accommodative stance for monetary policy. In particular, the
Committee decided today to purchase an additional $500 billion of agency mortgagebacked securities by the end of March 2013. In addition, the Committee decided to
continue its program to extend the average maturity of its holdings of securities as
announced in September. The Committee also is maintaining its existing policies of
reinvesting principal payments from its holdings of agency debt and agency mortgagebacked securities in agency mortgage-backed securities and of rolling over maturing
Treasury securities at auction. These programs should put downward pressure on
longer-term interest rates, provide support to mortgage markets, and help make
broader financial conditions more accommodative. The Committee will regularly
review the size and composition of its securities holdings and is prepared to adjust those
holdings as appropriate.
OR

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Class I FOMC – Restricted Controlled (FR)

3′.

To support a stronger economic recovery and to help ensure that inflation, over time, is at
levels the rate most consistent with the its dual mandate, the Committee expects to
maintain a highly accommodative stance for monetary policy. In particular, the
Committee decided today to purchase additional agency mortgage-backed securities,
initially at a rate of $40 billion per month. The Committee will adjust the pace of
purchases and determine the ultimate size of the program as needed to foster its
objectives. In addition, the Committee decided to continue its program to extend the
average maturity of its holdings of securities as announced in September. The
Committee also is maintaining its existing policies 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.
These programs should put downward pressure on longer-term interest rates,
provide support to mortgage markets, and help make broader financial conditions
more accommodative. The Committee will regularly review the size and composition of
its securities holdings and is prepared to adjust those holdings as appropriate.

4.

The Committee also decided to keep the target range for the federal funds rate at 0 to ¼
percent and currently anticipates that economic conditions—including low rates of
resource utilization and a subdued outlook for inflation over the medium run—are likely
to warrant exceptionally low levels for the federal funds rate at least through late 2014.

5.

The Committee will employ its tools as needed to promote a stronger economic
recovery in a context of price stability.

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Class I FOMC – Restricted Controlled (FR)

MARCH FOMC STATEMENT—ALTERNATIVE B
1.

Information received since the Federal Open Market Committee met in December
January suggests that the economy has been expanding moderately, notwithstanding
some slowing in global growth. While indicators point to some further improvement in
overall Labor market conditions have improved further; the unemployment rate has
declined notably in recent months but remains elevated. Household spending and
business fixed investment have continued to advance. but growth in business fixed
investment has slowed, and The housing sector remains depressed. Inflation has been
subdued in recent months, and although prices of crude oil and gasoline have
increased lately. 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 moderate economic growth
over coming quarters to be modest and consequently anticipates that the unemployment
rate will decline only gradually toward levels that the Committee judges to be consistent
with its dual mandate. Strains in global financial markets, while having eased
somewhat, continue to pose significant downside risks to the economic outlook. The
recent increase in oil and gasoline prices will push up inflation temporarily, but the
Committee also anticipates that over coming quarters subsequently inflation will run at
levels at or below those the rate that it judges most consistent with the Committee's its
dual mandate.

3.

To support a stronger economic recovery and to help ensure that inflation, over time, is at
levels the rate most consistent with the its dual mandate, the Committee expects to
maintain a highly accommodative stance for monetary policy. In particular, the
Committee decided today to keep the target range for the federal funds rate at 0 to ¼
percent and currently anticipates that economic conditions—including low rates of
resource utilization and a subdued outlook for inflation over the medium run—are likely
to warrant exceptionally low levels for the federal funds rate at least through late 2014.

4.

The Committee also decided to continue its program to extend the average maturity of its
holdings of securities as announced in September. The Committee is maintaining its
existing policies 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 will regularly review the
size and composition of its securities holdings and is prepared to adjust those holdings as
appropriate to promote a stronger economic recovery in a context of price stability.

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Class I FOMC – Restricted Controlled (FR)

MARCH FOMC STATEMENT—ALTERNATIVE C
1.

Information received since the Federal Open Market Committee met in December
January suggests that the economy has been expanding moderately, notwithstanding
some slowing in global growth. While indicators point to some further improvement in
overall labor market conditions, Although the unemployment rate remains elevated, it
has declined notably and the pace of employment growth has picked up. Household
spending and business fixed investment have continued to advance, but growth in
business fixed investment has slowed, and indicators of conditions in the housing sector
remains depressed have improved somewhat. Inflation has been subdued in recent
months, and longer-term inflation expectations have remained stable. However, prices
of crude oil and gasoline have increased significantly of late.

2.

Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The Committee expects a gradual increase in the pace
of economic growth over coming quarters to be modest and consequently anticipates that
the unemployment rate will continue to decline only gradually toward levels that the
Committee judges to be consistent with its dual mandate. Strains in global financial
markets continue to pose significant downside risks to the economic outlook. The
Committee also anticipates that over coming quarters, the recent increase in oil and
gasoline prices is likely to push inflation will run at levels at or below those above the
rate that the Committee judges most consistent with the Committee's its dual mandate.
Moreover, the Committee sees some risk that inflation could remain elevated going
forward given the current degree of policy accommodation.

3.

To support a stronger the economic recovery and to help ensure that inflation, over time,
is at levels the rate most consistent with the its dual mandate, the Committee expects to
maintain a highly accommodative stance for monetary policy. The Committee also
decided today to continue its reduce from $400 billion to $250 billion the program to
extend the average maturity of its holdings of securities as that was announced in
September and to complete this program by the end of March. In particular, The
Committee also decided today to keep the target range for the federal funds rate at 0 to ¼
percent and currently anticipates that economic conditions—including low rates of
resource utilization and a subdued outlook for inflation over the medium run—are likely
to warrant this exceptionally low levels range for the federal funds rate at least through
late 2014 will be appropriate only as long as inflation is projected to remain subdued
over the medium term, longer-term inflation expectations continue to be well
anchored, and progress toward maximum employment remains insufficient.

4.

The Committee is also maintaining its existing policies 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 will regularly review the size and composition of its securities holdings
and is prepared to adjust those holdings as appropriate to promote a stronger economic
recovery in a context of its objectives of maximum employment and price stability.

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March 13, 2012

203 of 213

Class I FOMC – Restricted Controlled (FR)

JANUARY 2012 DIRECTIVE
The Federal Open Market Committee seeks monetary and financial conditions that will
foster price stability and promote sustainable growth in output. To further its long-run
objectives, 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 continue the
maturity extension program it began in September to purchase, by the end of June 2012,
Treasury securities with remaining maturities of approximately 6 years to 30 years with a
total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3
years or less with a total face value of $400 billion. The Committee also directs the Desk to
maintain its existing policies of rolling over maturing Treasury securities into new issues and
of reinvesting principal payments on all agency debt and agency mortgage-backed securities
in the System Open Market Account in agency mortgage-backed securities in order to
maintain the total face value of domestic securities at approximately $2.6 trillion. The
Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate
settlement of the Federal Reserve's agency MBS 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.

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Class I FOMC – Restricted Controlled (FR)

MARCH 2012 DIRECTIVE—ALTERNATIVE A
The Federal Open Market Committee seeks monetary and financial conditions that will
foster price stability and promote sustainable growth in output. To further its long-run
objectives, 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 continue the
maturity extension program it began in September to purchase, by the end of June 2012,
Treasury securities with remaining maturities of approximately 6 years to 30 years with a
total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3
years or less with a total face value of $400 billion. [ The Committee also directs the Desk
to execute purchases of agency mortgage-backed securities by the end of March 2013 in
order to increase the total face value of domestic securities held in the System Open
Market Account to approximately $3.1 trillion. | The Committee also directs the Desk to
execute purchases of agency mortgage-backed securities in order to increase the total
face value of domestic securities held in the System Open Market Account by
approximately $40 billion per month. ] The Committee also directs the Desk to maintain
its existing policies of rolling over maturing Treasury securities into new issues and of
reinvesting principal payments on all agency debt and agency mortgage-backed securities in
the System Open Market Account in agency mortgage-backed securities in order to maintain
the total face value of domestic securities at approximately $2.6 trillion. The Committee
directs the Desk to engage in dollar roll and coupon swap transactions as necessary to
facilitate settlement of the Federal Reserve's agency MBS 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.

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Class I FOMC – Restricted Controlled (FR)

MARCH 2012 DIRECTIVE—ALTERNATIVE B
The Federal Open Market Committee seeks monetary and financial conditions that will
foster price stability and promote sustainable growth in output. To further its long-run
objectives, 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 continue the
maturity extension program it began in September to purchase, by the end of June 2012,
Treasury securities with remaining maturities of approximately 6 years to 30 years with a
total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3
years or less with a total face value of $400 billion. The Committee also directs the Desk to
maintain its existing policies of rolling over maturing Treasury securities into new issues and
of reinvesting principal payments on all agency debt and agency mortgage-backed securities
in the System Open Market Account in agency mortgage-backed securities in order to
maintain the total face value of domestic securities at approximately $2.6 trillion. The
Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate
settlement of the Federal Reserve's agency MBS 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.

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Class I FOMC – Restricted Controlled (FR)

MARCH 2012 DIRECTIVE—ALTERNATIVE C
The Federal Open Market Committee seeks monetary and financial conditions that will
foster price stability and promote sustainable growth in output. To further its long-run
objectives, 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 continue modify
the maturity extension program it began in September so as to purchase, by the end of June
March 2012, Treasury securities with remaining maturities of approximately 6 years to 30
years with a total face value of $400 $250 billion, and to sell Treasury securities with
remaining maturities of 3 years or less with a total face value of $400 $250 billion. The
Committee also directs the Desk to maintain its existing policies of rolling over maturing
Treasury securities into new issues and of reinvesting principal payments on all agency debt
and agency mortgage-backed securities in the System Open Market Account in agency
mortgage-backed securities in order to maintain the total face value of domestic securities at
approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll
transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS
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.

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Appendix 4: Materials for “Discussion of Issues Related to Policy Communications”

Authorized for Public Release

March 13, 2012

Class I FOMC – Restricted Controlled (FR)

Material for

Discussion of Issues Related
to Policy Communications

March 13, 2012

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Class I FOMC – Restricted Controlled (FR)
Questions for FOMC Discussion of Policy Communications Issues
1. Should the Committee’s post-meeting statements be used to provide information
about the links between the Committee’s economic outlook and its policy decisions?
a. Should the post-meeting statement incorporate qualitative or quantitative
information about the economic conditions that the Committee judges would lead
to a shift in the stance of monetary policy, that is, either to the start of policy
firming or to the provision of additional monetary accommodation (perhaps along
the lines of the attached sample language in section B of the appendix)?
b. Should the post-meeting statement incorporate additional information about the
Committee’s economic outlook over the medium run rather than just over coming
quarters (as in the attached sample language in section C of the appendix)?
c. If you support adding quantitative information to the statement along the lines of
(a) or (b) above, what process would you envision using to settle on the specific
information to be added?
d. If the post-meeting statement provides further information about the
conditionality of the forward guidance, should the Committee continue to refer to
a calendar date in describing the likely timing of policy liftoff?
2. Would further adjustments to the SEP be helpful in clarifying the linkages between
the Committee’s economic outlook and its policy decisions?
a. Should the SEP provide summary information about the views of Committee
members separately from the views of all FOMC participants?
b. Should the SEP use scatter plots or other visual representations to provide
information about the connections between participants’ economic projections
and their policy projections?
c. Should the full “matrix” of projections be released to the public, thereby linking
each participant’s economic forecasts with his or her policy judgments? If so,
should the Committee identify the individual making each set of projections or
seek to preserve participants’ anonymity to the extent possible?
d. Are there other enhancements to the SEP that you view as potentially helpful in
increasing the public’s understanding of the links between the economic outlook
and the Committee’s decisions?
3. Are there other potential approaches for clarifying the conditionality of the
Committee’s policy decisions that you see as potentially promising? For example,
should the Committee start producing consensus forecasts for publication in the SEP?
Or perhaps the SEP could provide information about the Committee's likely response
to alternative economic scenarios? If you think these are promising ideas, how would
you envision the process of producing the consensus forecasts or alternative
economic scenarios?

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Appendix: Sample Language for the Post-Meeting Statement
A. For reference, the January statement language was:
1. Information received since the Federal Open Market Committee met in December
suggests that the economy has been expanding moderately, notwithstanding some
slowing in global growth. While indicators point to some further improvement in
overall labor market conditions, the unemployment rate remains elevated.
Household spending has continued to advance, but growth in business fixed
investment has slowed, and the housing sector remains depressed. Inflation has
been subdued in recent months, 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 economic growth over
coming quarters to be modest and consequently anticipates that the
unemployment rate will decline only gradually toward levels that the Committee
judges to be consistent with its dual mandate. Strains in global financial markets
continue to pose significant downside risks to the economic outlook. The
Committee also anticipates that over coming quarters, inflation will run at levels
at or below those consistent with the Committee's dual mandate.
3. To support a stronger economic recovery and to help ensure that inflation, over
time, is at levels consistent with the dual mandate, the Committee expects to
maintain a highly accommodative stance for monetary policy. In particular, the
Committee decided today to keep the target range for the federal funds rate at 0
to ¼ percent and currently anticipates that economic conditions – including low
rates of resource utilization and a subdued outlook for inflation over the medium
run – are likely to warrant exceptionally low levels for the federal funds rate at
least through late 2014.
4. The Committee also decided to continue its program to extend the average
maturity of its holdings of securities as announced in September. The Committee
is maintaining its existing policies 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 will regularly review the size and composition of its
securities holdings and is prepared to adjust those holdings as appropriate to
promote a stronger economic recovery in a context of price stability.

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B. In your remarks you may wish to note whether you find any of the following four
alternatives to the end of paragraph 3 in the post-meeting statement to be helpful in
providing greater clarity about the linkages between the economic outlook and the
Committee's monetary policy decision.
3.1

…In particular, the Committee decided today to keep the target range for the
federal funds rate at 0 to ¼ percent and currently anticipates that economic
conditions—including low rates of resource utilization and a subdued outlook for
inflation over the medium run— are likely to warrant exceptionally low levels for
the federal funds rate at least through late 2014. The Committee expects that at
the time of the first increase in the target federal funds rate, the
unemployment rate will be nearing or will have moved somewhat below [ 7 ]
percent and inflation will be close to or somewhat below [ 2 ] percent. In
judging when to first increase the target federal funds rate, the Committee
will consider a range of factors, including the pace of improvement in labor
market conditions and the contours of the medium-term inflation outlook.

3.2

…In particular, the Committee decided today to keep the target range for the
federal funds rate at 0 to ¼ percent and currently anticipates that economic
conditions—including low rates of resource utilization and a subdued outlook for
inflation over the medium run— are likely to warrant exceptionally low levels for
the federal funds rate at least through late 2014. The Committee currently
projects that, with the target federal funds rate maintained at exceptionally
low levels, inflation will remain close to or somewhat below [ 2 ] percent in
the medium term and the unemployment rate will decline gradually. Based
on that projection, and given the lags with which monetary policy affects the
economy, the Committee currently estimates that it will become appropriate
to raise the target federal funds rate when the unemployment rate has moved
near or somewhat below [ 7 ] percent. In deciding when to change policy, the
Committee will take into account a range of factors, including the outlook for
inflation, longer-term inflation expectations, and the pace of improvement in
labor market conditions.

3.3

…In particular, the Committee decided today to keep the target range for the
federal funds rate at 0 to ¼ percent and currently anticipates that economic
conditions—including low rates of resource utilization and a subdued outlook for
inflation over the medium run— are likely to warrant exceptionally low levels for
the federal funds rate at least through late 2014. Among the factors that the
Committee will take into account in determining how long to maintain the
current stance of policy are the outlook for inflation, the level of longer-term
inflation expectations, the extent of resource slack, and the pace of
improvement in labor market conditions. [ In particular, if inflation

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appeared likely to be persistently above target, then, all else equal, the
Committee would move to reduce policy accommodation earlier; conversely,
if unemployment were not making sufficient progress toward levels
consistent with the dual mandate, then, all else equal, the Committee would
maintain an exceptionally accommodative policy stance for a longer time. ]
3.4

…In particular, the Committee decided today to keep the target range for the
federal funds rate at 0 to ¼ percent and continues to anticipate that economic
conditions—including low rates of resource utilization and a subdued outlook for
inflation over the medium run—are likely to warrant exceptionally low levels for
the federal funds rate at least through late 2014. The Committee also decided to
continue its program to extend the average maturity of its holdings of securities,
as announced in September, and is maintaining its existing policies 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 will monitor incoming
economic and financial information and will make adjustments to the stance
of monetary policy as appropriate to foster its statutory objectives of
maximum employment and price stability. The Committee currently
anticipates that at the time of the first increase in the target federal funds
rate, the unemployment rate will be nearing or will have moved somewhat
below [ 7 ] percent and inflation will be close to or somewhat below [ 2 ]
percent. The timing of that decision will reflect a range of factors, including
the Committee’s inflation outlook and its assessments of the pace of
improvement in labor market conditions and the longer-run normal rate of
unemployment. The Committee is prepared to provide further monetary
accommodation if employment is not making sufficient progress toward the
Committee’s assessments of its maximum level or if inflation appears likely
to be persistently below its mandate-consistent rate.

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C. In your remarks you may wish to note whether you find the following alternative
language for paragraph 2 in the post-meeting statement to be helpful in providing
information about the Committee’s economic outlook over the medium run rather than
just over coming quarters.
2.

Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The Committee expects that economic growth
over coming quarters to be modest and will remain moderate, reflecting
ongoing drags from the housing sector and still-tight credit conditions for
many households and smaller businesses. Looking further ahead, the pace of
economic activity is expected to pick up somewhat, supported by the
continuation of a highly accommodative stance for monetary policy.
Consequently, the Committee anticipates that the unemployment rate will decline
only gradually towards levels that the Committee it judges to be consistent with
its dual mandate. Strains in global financial markets, while having eased
somewhat, continue to pose significant downside risks to the economic outlook.
The recent increase in oil and gasoline prices is likely to boost inflation
temporarily, but the Committee also anticipates that over coming quarters,
subsequently inflation will run at levels at or somewhat below those the rate
that it judges most consistent with the Committee’s its dual mandate.

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102