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March 15–16, 2016 Authorized for Public Release Appendix 1: Materials used by Mr. Potter and Ms. Logan 154 of 192 March 15–16, 2016 Authorized for Public Release Class II FOMC – Restricted (FR) Material for the Briefing on Financial Developments and Open Market Operations Simon Potter and Lorie Logan March 15, 2016 155 of 192 March 15–16, 2016 Authorized for Public Release 156 of 192 Exhibit 1 Class II FOMC – Restricted (FR) (2) Importance of Factors Explaining Financial Market Volatility* (1) Asset Price Changes Jan. FOMC Since Since to 02/11/16 02/11/16 Dec. FOMC Changes in Percent Rating 4 S&P 500 Index -4 +11 -1 EuroStoxx 50 Index -12 +15 -5 3 Brent Crude -5 +34 +5 2 Bloomberg Dollar Index -2 -1 -2 1 0 Changes in Basis Points U.S. HY Corp. Credit OAS +95 -197 -25 U.S. IG Corp. Credit OAS +22 -39 +9 U.S. 10-Year Nominal TSY -34 +32 -28 U.S. Price (RHS) Percent USD/ Bbl. 12 10 8 6 4 2 0 01/04/16 01/18/16 02/01/16 02/15/16 02/29/16 45 40 35 30 25 20 15 10 5 0 Source: Bloomberg (5) Five-Year, Five-Year Real Rates* Japan U.S. Euro Area 2.0 1.5 Jan. FOMC 1.0 0.5 0.0 -0.5 -1.0 07/01/13 02/01/14 09/01/14 04/01/15 U.S. Chinese FX Oil Vol Foreign Central Bank Policy *Based on all responses from the March Surveys of Primary Dealers and Market Participants. Source: Federal Reserve Bank of New York (3) Brent Crude Realized Volatility and Price Level Intraday Trading Range (LHS) Foreign Growth and Inflation Source: Barclays, Bloomberg Percent Average 5 11/01/15 *Calculated by subtracting the inflation swap rate from the nominal swap rate and can be influenced by swap spreads and inflation bases across jurisdictions. Source: Barclays (4) RMB Level and Cumulative Change in China Foreign Exchange Reserves Cumulative Change (LHS) Onshore RMB (RHS)* $ Billions 0 -100 -200 -300 -400 -500 -600 -700 -800 -900 RMB/ USD 6.70 6.60 6.50 6.40 6.30 6.20 6.10 6.00 09/14 12/14 03/15 06/15 09/15 12/15 *Average level over the month. Source: Bloomberg (6) Equity and Bank Index Performance S&P 500 Index KBW Bank Index EuroStoxx 50 Index EuroStoxx Bank Index Indexed to 12/31/15 105 100 95 90 85 80 75 70 65 01/01/16 Source: Bloomberg Jan. FOMC 01/22/16 02/12/16 03/04/16 March 15–16, 2016 Authorized for Public Release 157 of 192 Exhibit 2 Class II FOMC – Restricted (FR) (7) Japanese Yen and Equity Performance USD-JPY (LHS) (8) ECB Policy Action TOPIX Index (RHS) Indexed to 12/31/15 Indexed to 12/31/15 103 Interest Rate Changes: • 5 bps cuts to refinancing operation rate and marginal lending facility rate to 0.00% and 0.25%, respectively 105 Stronger Dollar, Weaker Yen 100 • 97 95 Asset Purchase Changes: 94 90 • €20 billion monthly expansion to €80 billion per month 91 85 • Investment grade euro-denominated bonds issued by non- 100 BOJ Negative Rate Decision 88 85 01/03/16 01/20/16 10 bps cut to deposit facility rate to -0.40% banks will be eligible for purchases 80 02/05/16 02/23/16 75 03/10/16 TLTRO II will commence in June 2016 • Borrowing in these operations can be as low as the interest Source: Bloomberg rate on the deposit facility (9) Five-Year, Five-Year Inflation Swaps* Crisis Low Percentile Abe Takes Office (Dec. '12) Percentile Draghi at Jackson Hole (Aug. '14) Percentile Current Level Percentile (10) Share of Sovereign Bonds with Negative Yields U.S. Euro Area (Percent) Japan Maturity Japan Euro Area 1.93 2.26 -2.98 < 2 Years 100% 94% 0.01 0.48 0.00 2-5 Years 100% 67% 3.09 2.24 0.25 0.85 0.41 0.46 5-10 Years 100% 33% 2.77 1.95 1.14 10-15 Years 30% 6% 0.27 0.15 0.93 15-20 Years 0% 3% 1.99 1.50 0.01 0.01 0.01 0.29 20-30 Years 0% 1% Total 74% 51% *Percentiles of the distributions of rates over the last 10-years are shown for U.S. and euro area, and over the last 9-years for Japan (earliest data available). Source: Barclays Source: Bloomberg, Staff Calculations (12) Two-Year Rate Differential and Dollar Index (11) Expected and Implied Fed Funds Rate Paths Percent 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 03/01/16 SEP Medians Survey Modal Path (Mean)* Survey Unconditional Path (Mean)* Market Implied Path: Dec. FOMC Market-Implied Path: Current BPS Two-Year Rate Differential* (LHS) Bloomberg Dollar Index (RHS) 50 110 40 108 30 106 20 104 Dudley Interview 10 0 10/01/16 05/01/17 12/01/17 07/01/18 *Based on all responses from the March Surveys of Primary Dealers and Market Participants. Source: Bloomberg, Federal Reserve Bank of New York, Federal Reserve Board of Governors Indexed to 06/30/15 -10 07/01/15 102 100 09/01/15 11/01/15 01/01/16 98 03/01/16 *Computed as U.S. two-year yield less weighted average of two-year yields of countries with weights comparable to Bloomberg dollar index. Source: Bloomberg, Staff calculations March 15–16, 2016 Authorized for Public Release 158 of 192 Exhibit 3 Class II FOMC – Restricted (FR) (14) Overnight Treasury Repo Volumes* (13) Money Market Rates* FR 2420 EFFR GCF Tri-Party Ex. GCF and RRP** 3-Month Treasury Bill Rate BPS 75 $ Billions BPS 75 50 50 25 25 0 0 11/01/15 12/01/15 01/01/16 02/01/16 03/01/16 200 .00 180 .00 160 .00 140 .00 75 02/01/16 03/01/16 $ Billions MEP 125 01/01/16 (16) Cumulative Change in Bill Supply* (15) Primary Dealer Net Treasury Position $ Billions 12/01/15 Private Repo*** *Series exclude month-end dates. **Overnight RRP. ***Includes total triparty repo activity ex. Fed RRP. Source: Federal Reserve Bank of New York *Light dashed vertical lines indicate month-ends, dark dashed line indicates quarter-end. **Excludes intra-bank transactions. Source: Federal Reserve Bank of New York 175 450 400 350 300 250 200 150 100 50 0 11/01/15 Fed RRP** 150 100 50 0 120 .00 -50 100 .00 25 80.0 0 60.0 0 -25 40.0 0 20.0 0 -75 01/01/11 0.00 01/01/13 01/01/15 -100 -150 -200 -250 01/01/15 Source: Federal Reserve Bank of New York, Haver (17) Expected RRP Demand* 07/01/15 10/01/15 01/01/16 (18) Foreign RP Pool Volume Median $ Billions 04/01/15 *Shown as cumulative change since the start of 2015. Source: Federal Reserve Bank of New York, Treasury Department $ Billions 300 > 600 500 400 300 200 100 0 Current Top 5 Customers 250 All Others Terms of Service Change 200 150 6 months forward 1 year forward January 6 months forward 1 year forward March *Dots scaled by percent of respondents from the March Surveys of Primary Dealers and Market Participants. Source: Federal Reserve Bank of New York 100 50 0 01/01/14 07/01/14 01/01/15 Source: Federal Reserve Bank of New York 07/01/15 01/01/16 March 15–16, 2016 Authorized for Public Release 159 of 192 Exhibit 4 Class II FOMC – Restricted (FR) (20) Quarterly Realized and Projected Foreign Portfolio Income* (19) Recent Trends in SOMA Foreign Portfolio Income SOMA holds around $20 billion euro- and yen-denominated € Millions ¥ Millions Euro (LHS) Yen (RHS) 50 45 40 Due to negative rates in euro area and Japan: 35 • Euro interest income expected to turn negative this month 30 25 • Yen income expected to decline to zero but not negative 20 • Total SOMA foreign income expected to be negative in April 15 10 Negative income could be noted in the following reports: 5 • Monthly ESF financial statements 0 -5 • FRBNY Quarterly Report -10 • FRS and other RB annual reports and statements 03/01/10 09/01/11 03/01/13 09/01/14 03/01/16 1,500 1,350 1,200 1,050 900 750 600 450 300 150 0 -150 -300 investments *Filled dots are realized, unfilled dots are projections. Source: Federal Reserve Bank of New York (21) Projected and Realized SOMA Net Income: Annual Report* Historical 2014 Baseline (22) Receipts of Principal on SOMA Securities* Treasury 2015 Baseline $ Billions $ Billions 120 100 80 60 40 20 0 12/31/10 12/31/14 12/31/18 12/31/22 *Figures for 2010-15 (shaded area) are realized returns. Projected figures are rounded. Rate path and reinvestment assumptions use the Dec.’15 Surveys of Primary Dealers and Market Participants. Source: Federal Reserve Bank of New York (23) March Term RRP Announcement 80 70 60 50 40 30 20 10 0 01/31/15 Agency MBS Survey estimate of last month of full reinvestments** 01/31/16 01/31/17 01/31/18 *Filled bars are realized, unfilled bars are projections. **Based on all responses from the March Surveys of Primary Dealers and Market Participants. Source: Federal Reserve Bank of New York (24) March Quarter-End Term RRP Considerations Should the Committee decide to conduct term RRPs and an aggregate cap on ON RRP is not re-introduced: In support of conducting term RRPs: • The Desk plans to offer $250 billion in term RRPs • Supports FOMC guidance to reduce elevated ON RRP • Provides continuity to market capacity • Supports operational readiness Operation Date Maturity Date Term Amount Offered ($ Billions) Mar 28 Apr 04 7 Days 125 ON RRP + 1 Mar 30 Apr 01 2 Days 125 ON RRP + 1 Max. Rate (BPS) In support of not conducting term RRPs: • Current ON RRP facility should provide ample capacity o Term RRPs will not add to interest rate control • Incremental interest cost of providing term RRP Instruction to Desk to conduct term RRPs would be added to implementation note, released concurrent with March statement March 15–16, 2016 Authorized for Public Release 160 of 192 Appendix (Last) Class II FOMC – Restricted (FR) Appendix: Summary of Operational Testing Summary of Operational Tests in prior period: • Domestic Authorization o February 23: Completed Treasury outright purchase for $226 million • Foreign Authorization o February 9: Completed euro-denominated overnight repo for €1 million o February 9: Completed liquidity swap with Bank of Canada for $51 thousand • TDF test operation o February 18: Conducted 7-day test with total take-up of $64 billion Upcoming Operational Tests • No tests under the Domestic Authorization • Three tests scheduled under the Foreign Authorization o April 12: Euro-dominated overnight repo for approximately €1 million o April 19: Liquidity swap with the European Central Bank for approximately €51 thousand o April 21: Liquidity swap with the Swiss National Bank for approximately CHF 51 thousand March 15–16, 2016 Authorized for Public Release Appendix 2: Materials used by Mr. Wilcox 161 of 192 March 15–16, 2016 Authorized for Public Release Class II FOMC – Restricted (FR) Material for the Briefing on The U.S. Outlook David W. Wilcox March 15, 2016 162 of 192 March 15–16, 2016 Authorized for Public Release 163 of 192 Class II FOMC- Restricte Forecast Summary 1. Evolution of 2016:Q1 GDP Growth Nowcasts Percent, annual rate 6 Judgmental (Tealbook-consistent) Board staff factor model System staff models 5 4 6 5 4 3 3 2 2 1 1 0 0 -1 -1 -2 Dec. Jan. Feb. Mar. -2 Note: The shaded region is a 70 percent confidence interval around the Board staff factor model estimate. 2. Recession Probabilities at Various Horizons Percent 100 90 3 months ahead 6 months ahead 12 months ahead Unconditional prob. 80 70 3. Estimates of the Short-Run Real Natural Rate of Interest 100 90 80 70 60 60 50 50 40 40 30 30 20 20 10 10 0 2005 2007 2009 2011 2013 2015 0 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 Percent, annual rate Median estimate Range of model estimates 2007 2009 2011 2013 2015 2017 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 Note: Shaded bar indicates a period of business recession as defined by the National Bureau of Economic Research. 4. Real GDP 5. Unemployment Rate Percent change, annual rate 10 Percent 10 9 8 8 6 6 7 7 4 4 6 6 2 2 5 5 0 0 4 -2 -2 3 -4 2 Mar. TB Jan. TB 70% confidence interval 8 -4 2014 2015 2016 2017 2018 Note: Confidence intervals for panels 4 through 7 based on FRB/US stochastic simulations. Page 1 of 2 Mar. TB Jan. TB 70% confidence interval 9 8 4 Natural rate 3 2014 2015 2016 2017 2018 2 March 15–16, 2016 Authorized for Public Release 6. PCE Prices 7. PCE Prices Excluding Food and Energy Percent change, annual rate 6 Mar. TB Jan. TB 70% confidence interval 5 4 6 4 2 2 1 1 0 0 -1 -1 -2 -2 2015 2016 Mar. TB Jan. TB 70% confidence interval 4 3 2014 Percent change, annual rate 5 5 3 -3 2017 2018 -3 8. Inflation Revisions Since December: Total PCE Percentage points Source of Revision: Food Energy Core 2 2 1 1 0 0 -1 2014 2018 Percent Michigan, next five to ten years Twelve-month moving average SPF for PCE, next ten years 3.5 Source of Revision: Resource utilization Energy price passthrough Import prices Underlying inflation Other Feb. 2.0 2010 2012 2014 2016 0.7 Revisions to Projection 0.5 0.3 -0.1 -0.1 -0.3 -0.3 -0.5 -0.5 -0.7 2015 4.0 2.5 2.0 2008 -1 0.1 Q1 1.5 2018 0.1 3.0 2.5 2017 Percentage points 3.5 3.0 2016 0.7 10. Longer-Term Inflation Expectations 4.0 2015 9. Inflation Revisions Since December: Core PCE 0.5 2017 4 3 Revisions to Projection 2016 5 3 0.3 2015 164 of 192 Class II FOMC- Restricte 1.5 Note: Median responses. Shaded area denotes 70 percent of the historical range since 1998. Page 2 of 2 2016 2017 2018 -0.7 March 15–16, 2016 Authorized for Public Release Appendix 3: Materials used by Ms. Wilson 165 of 192 March 15–16, 2016 Authorized for Public Release Class II FOMC – Restricted (FR) Material for the Briefing on The International Outlook Beth Anne Wilson March 15, 2016 166 of 192 March 15–16, 2016 Authorized for Public Release 167 of 192 Exhibit 1 Page 1 of 2 Class II FOMC - Restricted (FR) The International Outlook 1. Foreign GDP 2. Chinese Exchange Rate Percent change, annual rate Dec. TB Jan. TB Emerging market economies (EME) 5 114 December 31, 2014 = 100 RMB/USD (inverted scale) 110 5.50 4 RMB appreciation 106 3 Total 2 2015 2016 2017 6.00 98 6.25 RMB/USD 6.50 1 90 0 2014 5.75 Multilateral Index* 102 94 Advanced foreign economies (AFE) 5.25 2018 6.75 86 2014 7.00 2015 2016 2017 2018 * China Foreign Exchange Trade System (nominal exchange rate basket). Source: CFETS, FRB, and staff calculations. 4. Brent Oil Prices 3. Real Dollar Indexes 2013:Q1 = 100 USD per barrel 135 AFE Dec. TB Jan. TB Monthly Dec. TB Jan. TB 130 Far Futures* 125 Broad 110 100 90 80 120 70 115 60 Dollar appreciation 110 EME 50 105 Spot 40 100 30 95 2013 2014 2015 2016 2017 5. Foreign Inflation * December 2018 contract. 6. AFE Policy Rates Percent change, annual rate 2017 % of GDP 2.5 4 45 Dec. TB Post-ECB meeting Dec. TB Monthly 2016 7. ECB Assets Percent 5 Dec. TB Jan. TB Quarterly 20 2015 2018 40 2.0 EME 3 35 1.5 2 30 Canada 1.0 1 25 AFE* 0 0.5 -1 2013 2014 2015 2016 2017 * Excludes effects of the April 2014 and April 2017 Japanese tax hikes. 20 United Kingdom 0.0 2014 2015 2016 2017 15 2010 2012 2014 2016 2018 March 15–16, 2016 Authorized for Public Release 168 of 192 Exhibit 2 Page 2 of 2 Class II FOMC - Restricted (FR) The International Outlook (2) 8. Recession Probability Model 9. Estimated Probability of Global Recession Over the Next 12 Months 1.0 Monthly probit model, including: - Index of macro indicators: IP, retail sales, new export orders, and GDP* - Index of financial stress: excess bond premium** 0.8 Unconditional Probability (.16) 0.6 Feb. 2016 World recession defined as countries comprising 2/3 of world GDP in recession 0.4 Model attributes current probability: - 2/3 to macro factors - 1/3 to financial factors 0.2 0.0 1975 1980 1985 1990 1995 2000 2005 2010 2015 * Aruoba, Diebold, Scotti Index (JBES, 2009). ** Gilchrist and Zakrajsek Index (AER, 2012). Note: Gray shading indicates that countries in our sample amounting to twothirds of the world economy are classified in recession. 10. Foreign Recession Scenarios 11. Foreign GDP 4-quarter percent change Baseline Effective FMP Less Effective FMP Tightening financial conditions, falling confidence reduce foreign GDP Effective Foreign Monetary Policy (FMP) - Foreign central bank actions depress bond yields, support domestic demand. Foreign GDP growth falls below 1%. - U.S. GDP growth down to 1.5%, real dollar up 4%. 6 5 4 3 2 Less Effective Foreign Monetary Policy - Low pass-through of monetary policy to private yields and household demand, GDP boost comes from exchange rate. - Foreign GDP growth falls below -1%. - U.S. GDP growth below 1% and real dollar up 9%. 1 0 -1 -2 2015 12. Real Broad Dollar 2015:Q1 = 100 13. U.S. GDP 2019 14. Federal Funds Rate 4-quarter percent change 120 2017 Percent 3.0 4.5 4.0 115 2.5 110 2.0 105 1.5 3.5 3.0 2.5 2.0 1.5 100 1.0 1.0 0.5 95 2015 2017 2019 0.5 2015 2017 2019 0.0 2015 2017 2019 March 15–16, 2016 Authorized for Public Release Appendix 4: Materials used by Mr. Tetlow 169 of 192 March 15–16, 2016 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on the Summary of Economic Projections Robert J. Tetlow March 15, 2016 170 of 192 March 15–16, 2016 Authorized for Public Release 171 of 192 Class I FOMC – Restricted Controlled (FR) Exhibit 1. Medians, central tendencies, and ranges of economic projections, 2016–18 and over the longer run Percent Change in real GDP Median of projections Central tendency of projections Range of projections 4 3 2 1 Actual 2011 2012 2013 2014 2015 2016 2017 2018 Longer run Percent Unemployment rate 9 8 7 6 5 4 2011 2012 2013 2014 2015 2016 2017 2018 Longer run Percent PCE inflation 3 2 1 2011 2012 2013 2014 2015 2016 2017 2018 Longer run Percent Core PCE inflation 3 2 1 2011 2012 2013 2014 2015 2016 2017 2018 Longer run Note: The data for the actual values of the variables are annual. The percent changes in real GDP and inflation are measured Q4/Q4. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Page 1 of 6 March 15–16, 2016 Authorized for Public Release 172 of 192 Class I FOMC – Restricted Controlled (FR) Exhibit 2. Economic projections for 2016–18 and over the longer run (percent) Change in real GDP 2016 Median . . . . . . . . . . . . . . . . . . . . . . . 2.2 December projection . . . . . . 2.4 Range . . . . . . . . . . . . . . . . . . . . . . . . 1.9 – 2.5 December projection . . . . . . 2.0 – 2.7 Memo: Tealbook . . . . . . . . . . . . . 2.2 December projection . . . . . . 2.5 2017 2018 2.1 2.2 1.7 – 2.3 1.8 – 2.5 2.2 2.0 2.0 2.0 1.8 – 2.3 1.7 – 2.4 2.0 1.9 Longer run 2.0 2.0 1.8 – 2.4 1.8 – 2.3 1.9 1.9 Unemployment rate 2016 Median . . . . . . . . . . . . . . . . . . . . . . . 4.7 December projection . . . . . . 4.7 Range . . . . . . . . . . . . . . . . . . . . . . . . 4.5 – 4.9 December projection . . . . . . 4.3 – 4.9 Memo: Tealbook . . . . . . . . . . . . . 4.8 December projection . . . . . . 4.7 2017 2018 4.6 4.7 4.3 – 4.9 4.5 – 5.0 4.5 4.6 4.5 4.7 4.3 – 5.0 4.5 – 5.3 4.3 4.5 Longer run 4.8 4.9 4.7 – 5.8 4.7 – 5.8 5.0 5.1 PCE inflation 2016 Median . . . . . . . . . . . . . . . . . . . . . . . 1.2 December projection . . . . . . 1.6 Range . . . . . . . . . . . . . . . . . . . . . . . . 1.0 – 1.6 December projection . . . . . . 1.2 – 2.1 Memo: Tealbook . . . . . . . . . . . . . 1.0 December projection . . . . . . 1.2 2017 2018 1.9 1.9 1.6 – 2.0 1.7 – 2.0 1.6 1.8 2.0 2.0 1.8 – 2.0 1.7 – 2.1 1.8 2.0 Longer run 2.0 2.0 2.0 2.0 2.0 2.0 Core PCE inflation 2016 Median . . . . . . . . . . . . . . . . . . . . . . . 1.6 December projection . . . . . . 1.6 Range . . . . . . . . . . . . . . . . . . . . . . . . 1.4 – 2.1 December projection . . . . . . 1.4 – 2.1 Memo: Tealbook . . . . . . . . . . . . . 1.4 December projection . . . . . . 1.4 2017 2018 1.8 1.9 1.6 – 2.0 1.6 – 2.0 1.6 1.7 2.0 2.0 1.8 – 2.0 1.7 – 2.1 1.8 1.9 * The percent changes in real GDP and inflation are measured Q4/Q4. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Page 2 of 6 March 15–16, 2016 Authorized for Public Release 173 of 192 Class I FOMC – Restricted Controlled (FR) Exhibit 3. Overview of FOMC participants’ assessments of appropriate monetary policy Percent March projections of the appropriate pace of monetary policy Target federal funds rate or midpoint of target range at year-end 5.0 March projections Median prescription based on Taylor (1999) rule Median of projections 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2016 2017 2018 Longer run Percent December projections of the appropriate pace of monetary policy Target federal funds rate or midpoint of target range at year-end December projections 5.0 Median prescription based on Taylor (1999) rule Median of projections 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2016 2017 2018 Longer run Note: In the two panels above, each circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. The red diamonds for each year represent the median of the federal funds rate prescriptions that were derived by taking each participant’s projections for the unemployment gap, core PCE inflation and longer-run nominal federal funds rate for that year and inserting them into the non-inertial Taylor (1999) rule. The whiskers represent the central tendency of the prescriptions of the non-intertial Taylor (1999) rule using participants’ projections. Page 3 of 6 March 15–16, 2016 Authorized for Public Release 174 of 192 Class I FOMC – Restricted Controlled (FR) Exhibit 4. Uncertainty and risks in economic projections Number of participants Uncertainty about GDP growth Risks to GDP growth March projections December projections Lower Broadly similar Number of participants March projections December projections 18 16 14 12 10 8 6 4 2 Higher Weighted to downside Broadly balanced Number of participants Uncertainty about the unemployment rate 18 16 14 12 10 8 6 4 2 Weighted to upside Number of participants Risks to the unemployment rate 18 16 14 12 10 8 6 4 2 Lower Broadly similar 18 16 14 12 10 8 6 4 2 Higher Weighted to downside Broadly balanced Number of participants Uncertainty about PCE inflation Weighted to upside Number of participants Risks to PCE inflation 18 16 14 12 10 8 6 4 2 Lower Broadly similar 18 16 14 12 10 8 6 4 2 Higher Weighted to downside Broadly balanced Number of participants Uncertainty about core PCE inflation Weighted to upside Number of participants Risks to core PCE inflation 18 16 14 12 10 8 6 4 2 Lower Broadly similar Higher 18 16 14 12 10 8 6 4 2 Weighted to downside Page 4 of 6 Broadly balanced Weighted to upside March 15–16, 2016 Authorized for Public Release 175 of 192 Class I FOMC – Restricted Controlled (FR) Exhibit 5. History of assessments of uncertainty in economic projections Diffusion index Change in real GDP 1 0.8 0.6 0.4 0.2 0 2012 2013 2014 SEP meeting date 2015 2016 Diffusion index Unemployment rate 1 0.8 0.6 0.4 0.2 0 2012 2013 2014 SEP meeting date 2015 2016 Diffusion index PCE inflation 1 0.8 0.6 0.4 0.2 0 2012 2013 2014 SEP meeting date 2015 2016 Diffusion index Core PCE inflation 1 0.8 0.6 0.4 0.2 0 2012 2013 2014 SEP meeting date 2015 2016 Note: The diffusion index for uncertainty about a variable equals the fraction of participants who reported that uncertainty about that variable is higher than normal minus the fraction who reported that uncertainty is lower than normal. Page 5 of 6 March 15–16, 2016 Authorized for Public Release 176 of 192 Class I FOMC – Restricted Controlled (FR) Exhibit 6. History of assessments of risk in economic projections Diffusion index Change in real GDP 0.2 + 0 0.2 0.4 0.6 0.8 2012 2013 2014 SEP meeting date 2015 2016 Diffusion index Unemployment rate 0.8 0.6 0.4 0.2 + 0 - 2012 2013 2014 SEP meeting date 2015 2016 Diffusion index PCE inflation 0.2 + 0 0.2 0.4 0.6 0.8 2012 2013 2014 SEP meeting date 2015 2016 Diffusion index Core PCE inflation 0.2 + 0 0.2 0.4 0.6 0.8 2012 2013 2014 SEP meeting date 2015 2016 Note: The diffusion index for assessment of risks about a variable equals the fraction of participants who reported that risks are weighted to the upside minus the fraction who reported that risks are weighted to the downside. Page 6 of 6 March 15–16, 2016 Authorized for Public Release Appendix 5: Materials used by Mr. Laubach 177 of 192 March 15–16, 2016 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for the Briefing on Monetary Policy Alternatives Thomas Laubach March 15–16, 2016 178 of 192 March 15–16, 2016 Authorized for Public Release 179 of 192 Exhibit 1: Monetary Policy Alternatives Medium Term Outlook: 2017 Q4/Q4 Survey Responses Dec./Jan. Federal Funds Rate Projections Percent Percent 3.5 Dec. 15, 2015 Feb. 11, 2016 Mar. 14, 2016 March Real GDP 3.0 PD Survey 2.3 2.25 2.5 Blue Chip 2.4 2.3 2.0 PD Survey (PCE) 2 2.05 Blue Chip (CPI) 2.3 2.3 1.5 Inflation 1.0 0.5 2016 Note: The inflation measures are headline PCE and headline CPI inflation, respectively. The Primary Dealer Survey was taken before Dec 8, 2015; the Blue Chip survey was taken January 4−5, 2016. Source: FRBNY Primary Dealer Survey and Blue Chip Economic Indicators Survey. 4:00 PM on January 26, 2016 = 100 Percent Conditional: no ZLB 50 Conditional: ZLB Unconditional* 40 30 20 10 .26−.50 .51−1 1.01−1.5 1.5−2 2.01−2.5 2.51−3 3.01−3.5 0.0 2019 Dollars per barrel 140 5−minute intervals 75 WTI Crude (left scale) S&P 500 Futures (right scale) 135 65 125 60 120 55 115 50 110 45 105 40 100 35 95 30 >=3.51 90 25 Jan. 2 Mar. 18 May 29 Aug. 11 Oct. 26 2015 Jan. 28 2016 * Based on the median dealer estimate of 25% probability of the funds rate returning to the ZLB. Source: FRBNY Primary Dealer Survey. Note: Two−month West Texas Intermediate futures. Source: Bloomberg. Inflation Compensation: Composition of Decline Basis Points since mid−2014 Risk−Neutral Probability of Average Inflation Over Next Ten Years Falling Below 1% Percent 0 60 Jan. FOMC −20 Inflation Expectations 70 130 0 0−.25 2018 Intraday Crude Oil and S&P 500 Futures Distribution of Federal Funds Rate: End−of−2017 <=0 2017 Note: The implied federal funds rate path is estimated using overnight index swaps (OIS) quotes with a spline approach and a term premium of zero basis points. Source: Bloomberg and staff calculations. 55 50 45 −40 40 Inflation Risk Premium −60 35 30 −80 Other Premiums 25 20 −100 PD Survey Fed Models* *Fed models reflect the average composition from term structure models of the Board, FRBNY, and FRB Chicago. Feb. May. Aug. 2015 Note: Implied by inflation caps and floors. Source: BGC Partners and Staff calculations. Page 1 of 11 Nov. Feb. 2016 March 15–16, 2016 Authorized for Public Release 180 of 192 JANUARY 2016 FOMC STATEMENT 1. Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook. 3. Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at ¼ to ½ percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. 4. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data. 5. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency Page 2 of 11 March 15–16, 2016 Authorized for Public Release 181 of 192 mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. Page 3 of 11 March 15–16, 2016 Authorized for Public Release 182 of 192 MARCH 2016 ALTERNATIVE A 1. Information received since the Federal Open Market Committee met in December January suggests that labor market conditions improved further even as economic growth slowed late last year economic activity has been expanding at a moderate pace. Household spending and business fixed investment have has been increasing at moderate rates a solid moderate rate in recent months, and the housing sector has improved further; however, business fixed investment and net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources strengthening of the labor market. Inflation has picked up in recent months; however, it continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of nonenergy imports. Market-based measures of inflation compensation declined further remain near historically low levels; some survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months declined further. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of appropriately accommodative monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments in recent months pose downside risks to the outlook for economic activity and the labor market. Inflation is expected to remain low in the near term, in part because of the further earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook. In light of continued low readings from measures of longer-term inflation compensation and expectations, the Committee judges that the risks that inflation will fail to rise to 2 percent over the medium term have increased. 3. Given the economic outlook and associated risks, the Committee decided to maintain the target range for the federal funds rate at ¼ to ½ percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. The Committee anticipates that it will not increase this target range until inflation moves closer to 2 percent on a sustained basis and the risks to the economic outlook are more closely balanced. 4. In determining the When adjustments to the target range become appropriate, their timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess will depend on the Committee’s assessment of realized and expected economic conditions relative to its objectives of maximum Page 4 of 11 March 15–16, 2016 Authorized for Public Release 183 of 192 employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to will remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data. 5. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. Page 5 of 11 March 15–16, 2016 Authorized for Public Release 184 of 192 MARCH 2016 ALTERNATIVE B 1. Information received since the Federal Open Market Committee met in December January suggests that labor market conditions improved further even as economic growth slowed late last year economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending and business fixed investment have has been increasing at moderate rates in recent months a solid moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources strengthening of the labor market. Inflation has picked up in recent months; however, it continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of nonenergy imports. Market-based measures of inflation compensation declined further remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of the further earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook. The Committee continues to monitor inflation developments closely. 3. Given the economic outlook Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at ¼ to ½ percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. 4. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, Page 6 of 11 March 15–16, 2016 Authorized for Public Release 185 of 192 below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data. 5. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. Page 7 of 11 March 15–16, 2016 Authorized for Public Release 186 of 192 MARCH 2016 ALTERNATIVE C 1. Information received since the Federal Open Market Committee met in December January suggests that labor market conditions improved further even as economic growth slowed late last year economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending and business fixed investment have has been increasing at moderate rates in recent months a solid moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources strengthening of the labor market. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports, but it has risen in recent months. Market-based measures of inflation compensation declined further; and survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook continues to monitor inflation developments closely. 3. Given the economic outlook Against this backdrop, the Committee decided to maintain increase the target range for the federal funds rate at ¼ to ½ to ¾ percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. 4. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases Page 8 of 11 March 15–16, 2016 Authorized for Public Release 187 of 192 in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data. 5. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. Page 9 of 11 March 15–16, 2016 Authorized for Public Release 188 of 192 Implementation Note for March 2016 Alternative A and Alternative B Release Date: January 27 March 16, 2016 Decisions Regarding Monetary Policy Implementation The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on January 27 March 16, 2016: The Board of Governors of the Federal Reserve System left unchanged the interest rate paid on required and excess reserve balances at 0.50 percent. As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive: “Effective January 28 March 17, 2016, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1/4 to 1/2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 0.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over maturing Treasury securities at auction and to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgagebacked securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions.” More information regarding open market operations may be found on the Federal Reserve Bank of New York’s website. The Board of Governors of the Federal Reserve System took no action to change the discount rate (the primary credit rate), which remains at 1.00 percent. This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve’s operational tools and approach used to implement monetary policy. Page 10 of 11 March 15–16, 2016 Authorized for Public Release 189 of 192 Implementation Note for March 2016 Alternative C Release Date: January 27 March 16, 2016 Decisions Regarding Monetary Policy Implementation The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on January 27 March 16, 2016: The Board of Governors of the Federal Reserve System left unchanged the interest rate paid on required and excess reserve balances at 0.50 percent voted [ unanimously ] to raise the interest rate paid on required and excess reserve balances to 0.75 percent, effective March 17, 2016. As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive: “Effective January 28 March 17, 2016, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1/4 to 1/2 to 3/4 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 0.25 0.50 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over maturing Treasury securities at auction and to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgagebacked securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions.” More information regarding open market operations may be found on the Federal Reserve Bank of New York’s website. In a related action, the Board of Governors of the Federal Reserve System took no action to change the discount rate (the primary credit rate), which remains at 1.00 voted [ unanimously ] to approve a 1/4 percentage point increase in the discount rate (the primary credit rate) to 1.25 percent, effective March 17, 2016. In taking this action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of … . This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve’s operational tools and approach used to implement monetary policy. Page 11 of 11 March 15–16, 2016 Authorized for Public Release Appendix 6: Materials used by Mr. Wilcox 190 of 192 March 15–16, 2016 Authorized for Public Release Class II FOMC – Restricted (FR) Material for Consumer Price Index Update David W. Wilcox March 16, 2016 191 of 192 March 15–16, 2016 Authorized for Public Release 192 of 192 Class II FOMC-Restricted (FR) Recent Changes in Consumer Price Indexes (Percent changes) Monthly change Dec. Jan. Feb. -0.1 0.0 -0.2 -0.2 Food March TB -0.2 0.0 0.2 0.1 Energy March TB -2.8 -2.8 -6.0 -5.4 Core CPI March TB 0.2 0.3 0.3 0.2 Total CPI March TB Feb./Feb. change 2015 2016 0.0 1.0 0.9 1.7 2.3 Note: February 2016 CPI data released at 8:30 a.m. on March 16, 2016. Page 1 of 1 2.2
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