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March 15, 2011 Authorized for Public Release Appendix 1: Materials used by Mr. Sack 151 of 165 March 15, 2011 Authorized for Public Release Material for FOMC Presentation: Financial Market Developments and Desk Operations Brian Sack March 15, 2011 152 of 165 March 15, 2011 Authorized for Public Release 153 of 165 Exhibit 1 (1) Brent Oil Price* Indexed to 08/03/09 (2) Economic News Index* Percent 100 165 FOMC FOMC 75 50 145 25 0 125 -25 -50 105 -75 85 -100 08/03/09 01/03/10 06/03/10 11/03/10 08/03/09 *Front-month futures contract. Source: Bloomberg 06/03/10 11/03/10 *Positive readings correspond to stronger-than-expected economic releases. Source: Citigroup (3) Implied Federal Funds Rate Path* Percent 01/03/10 (4) Treasury Yields Percent 4.0 2.5 03/11/11 01/25/11 2.0 FOMC 3.0 1.5 2.0 1.0 1.0 0.5 0.0 0.0 03/14/11 03/14/12 03/14/13 03/14/14 *Based on federal funds and eurodollar futures rates. Source: Federal Reserve Bank of New York 08/03/09 5-Year 01/03/10 06/03/10 10-Year 11/03/10 Source: Bloomberg (5) Breakeven Inflation Rates Percent 2-Year 4.0 FOMC 75th percentile* 3.0 (6) Intermeeting Change in Forward Breakeven Inflation Rates (1-Year Rates) BPS 125 100 75 25th percentile* 2.0 50 1.0 25 5-Year, 5-Year Forward 5-Year Spot 0.0 08/03/09 0 01/03/10 06/03/10 *Interquartile range computed using data since 2003. Source: Federal Reserve Board of Governors 11/03/10 0 1 2 Years Ahead Source: Federal Reserve Board of Governors 3 4 March 15, 2011 Authorized for Public Release 154 of 165 Exhibit 2 (7) S&P 500 Index Indexed to 08/03/09 (8) Equity Risk Premium* Percent 12.0 140 FOMC 10.0 130 8.0 6.0 120 4.0 110 2.0 0.0 100 -2.0 90 -4.0 08/03/09 01/03/10 06/03/10 11/03/10 01/01/90 01/01/08 *Last observation is for March Source: Federal Reserve Board of Governors (9) Credit Spreads (10) CMBS Issuance $ Billions 2,000 1,600 01/01/02 11th. Source: Bloomberg BPS 01/01/96 250 High Yield Corporate Bonds Leveraged Loans 200 150 1,200 100 800 50 400 12/31/04 12/31/07 Indexed to 08/03/09 (11) DXY Dollar Index 12/31/10 Percent 2010 2009 2008 2007 2006 U.S U.K. Germany FOMC 1.5 110 105 1.0 100 0.5 95 0.0 Source: Bloomberg 2005 (12) 2-Year Global Sovereign Debt Yields 2.0 115 08/03/09 2004 2003 *Average dealer forecast for total 2011 issuance. Source: Credit Suisse, Federal Reserve Bank of New York 01/03/10 06/03/10 11/03/10 01/01/10 Source: Bloomberg 05/01/10 09/01/10 FOMC 01/01/11 2011* 12/31/01 Source: Bank of America, Credit Suisse 2002 0 2001 2000 0 March 15, 2011 Authorized for Public Release 155 of 165 Exhibit 3 (13) SOMA Security Holdings $ Billions 2,500 $ Billions Agency Debt MBS Treasury Securities 2,000 Source: Federal Reserve Board of Governors Forecast Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Feb-11 Dec-10 Oct-10 Aug-10 Jun-10 Apr-10 0 Feb-10 0 Dec-09 40 Oct-09 500 Aug-09 80 Jun-09 1,000 Apr-09 120 Feb-09 Agency Debt MBS Treasury Securities 160 1,500 Dec-08 (14) SOMA Outright Purchases 200 Source: Federal Reserve Bank of New York (15) MBS Spread to Treasuries* (16) Trading Volume in Treasury Securities* BPS $ Billions 100 75 Start of taper 200 End of purchases Start of LSAP 2 160 50 120 25 0 80 -25 40 -50 01/02/09 09/02/09 05/02/10 01/02/11 *Option-adjusted spread series for current coupon security, only using the 4.0 coupon between 06/01/10 and 11/08/10. Source: Barclays Capital 0 01/01/06 (17) SOMA Income Projections* 01/01/09 07/01/10 (18) SOMA Income Projections* $ Billions $ Billions 120 120 March Tealbook Baseline January Tealbook Baseline 90 90 60 60 30 30 0 0 2007 07/01/07 *10-day moving average of daily volume of all benchmark coupon securities. Source: BrokerTec 2009 2011 2013 2015 2017 *Actual values through 2010 and FRBNY projections thereafter. Source: Federal Reserve Bank of New York 2019 2007 March Tealbook Baseline Counterfactual with No LSAPs 2009 2011 2013 2015 2017 *Actual values through 2010 and FRBNY projections thereafter. Source: Federal Reserve Bank of New York 2019 March 15, 2011 Authorized for Public Release Appendix 2: Materials used by Mr. English 156 of 165 March 15, 2011 Authorized for Public Release Material for FOMC Briefing on Monetary Policy Alternatives Bill English March 15, 2011 157 of 165 March 15, 2011 Authorized for Public Release 158 of 165 JANUARY FOMC STATEMENT 1. Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. 3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability. 4. The Committee will maintain 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, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. 5. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. 1 of 8 March 15, 2011 Authorized for Public Release 159 of 165 MARCH FOMC STATEMENT—ALTERNATIVE A 1. Information received since the Federal Open Market Committee met in December January confirms that the economic recovery is continuing. , though at a rate that has been insufficient to bring about a significant improvement in Although overall conditions in the labor market conditions appear to be improving gradually, employment remains at low levels. Growth in Household spending has been increasing in recent months picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Recent increases in energy costs may be weighing on household spending on non-energy goods and services. Business spending on equipment and software is rising, while but investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although energy and other commodity prices have risen significantly since the summer, boosting headline inflation, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trended ing downward. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow downside risks to the economic outlook remain significant. 3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust is prepared to expand and extend the purchase program the program as if needed to best foster maximum employment and price stability. 4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to currently anticipates that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2012 for an extended period. 5. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. 2 of 8 March 15, 2011 Authorized for Public Release 160 of 165 MARCH FOMC STATEMENT—ALTERNATIVE B 1. Information received since the Federal Open Market Committee met in December January suggests confirms that the economic recovery is on a somewhat firmer footing, and continuing, though at a rate that has been insufficient to bring about a significant improvement in overall conditions in the labor market conditions appear to be improving gradually. Growth in Household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit and business investment in equipment and software is rising continue to expand. However, while investment in nonresidential structures is still weak, and Employers remain reluctant to add to payrolls. the housing sector continues to be depressed. Although Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward subdued. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains is elevated, and measures of underlying inflation are continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are temporarily putting upward pressure on headline inflation. The Committee expects limited pass-through to underlying inflation, but it will pay close attention to the evolution of overall inflation and inflation expectations. Although The Committee continues to anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. 3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011[, a pace of about $80 billion a month]. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability. 4. The Committee will maintain 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, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. 5. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. 3 of 8 March 15, 2011 Authorized for Public Release 161 of 165 MARCH FOMC STATEMENT—ALTERNATIVE C 1. Information received since the Federal Open Market Committee met in December January confirms that the economic recovery is strengthening and conditions in the labor market are improving. continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in Household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit and business investment in equipment and software continue to expand. spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. However, the housing sector continues to be depressed. Although Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward subdued. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is remains elevated, and measures of underlying inflation are continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are temporarily putting upward pressure on headline inflation. The Committee expects limited pass-through to underlying inflation, but it will pay close attention to the evolution of overall inflation and inflation expectations. Although The Committee continues to anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. 3. To support the promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. However, in light of incoming economic information, the Committee will gradually reduce the pace of its purchases of longer-term Treasury securities with the intention of limiting the increase in its holdings to a total of $450 billion by the end of the second quarter of 2011—$150 billion less than announced in November. In particular For the time being, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will continue to regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability. 4. The Committee will maintain 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, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for some time an extended period. 5. The Committee will continue to monitor the economic outlook and financial developments, and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. 4 of 8 March 15, 2011 Authorized for Public Release 162 of 165 January 2011 FOMC 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 execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. 5 of 8 March 15, 2011 Authorized for Public Release 163 of 165 March 2011 FOMC 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 execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. 6 of 8 March 15, 2011 Authorized for Public Release 164 of 165 March 2011 FOMC 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 execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. 7 of 8 March 15, 2011 Authorized for Public Release 165 of 165 March 2011 FOMC 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 execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 $2.5 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability. 8 of 8
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