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Presentation Materials (PDF) Pages 114 to 127 of the Transcript Appendix 1: Materials used by Mr. Dudley Class II FOMC - Restricted FR Page 1 Top panel (1) Collateral Haircuts Moving Higher February 1, 2008 - March 10, 2008 Haircuts by Asset Class Maturity Overnight COLLATERAL Treasury Agency Debt Agency MBS 1-Month 3-Month Date Average High Low Average High Low Average High Low 10-Mar 0.3% 1.5% 0.0% 0.3% 1.5% 0.0% 0.4% 1.5% 0.0% 3-Mar 0.2% 1.5% 0.0% 0.3% 1.5% 0.0% 0.4% 1.5% 0.0% 1-Feb 0.2% 1.5% 0.0% 0.3% 1.5% 0.0% 0.4% 1.5% 0.0% 10-Mar 0.7% 2.0% 0.0% 1.2% 5.0% 0.0% 1.3% 5.0% 0.0% 3-Mar 0.6% 2.0% 0.0% 0.9% 3.0% 0.0% 1.0% 3.0% 0.0% 1-Feb 0.6% 2.0% 0.0% 0.9% 3.0% 0.0% 1.0% 3.0% 0.0% 10-Mar 5% 7% 3% 5% 8% 3% 7% 10% 3% 3-Mar 3% 3% 3% 3% 3% 3% 4% 5% 3% 1-Feb 3% 3% 2% 3% 3% 3% 4% 5% 3% 10-Mar 16% 20% 10% 18% 20% 12% 17% 18% 15% 3-Mar 16% 18% 15% 16% 18% 15% 18% 18% 18% 1-Feb 11% 15% 5% 10% 18% 4% 12% 18% 7% 10-Mar 23% 33% 18% 25% 33% 18% 3-Mar 14% 18% 10% 16% 20% 10% 1-Feb 11% 13% 10% 11% 13% 10% Non-agency MBS Prime Alt-A Corporate Debt Maturity Overnight COLLATERAL High Grade High Yield 1-Month 3-Month Date Average High Low Average High Low Average High Low 10-Mar 12% 25% 5% 16% 25% 5% 18% 25% 15% 3-Mar 11% 25% 3% 13% 25% 3% 18% 25% 15% 1-Feb 10% 25% 3% 11% 25% 3% 14% 25% 3% 10-Mar 30% 70% 10% 32% 70% 15% 36% 70% 25% 3-Mar 26% 70% 9% 27% 70% 10% 35% 70% 20% 1-Feb 25% 70% 6% 26% 70% 10% 28% 70% 10% Source: Survey of 11 Hedge Funds and 1 REIT Bottom panel (2) Title: Mortgage Rates Series: Fannie Mae current coupon mortgage yield and option-adjusted spread and 10-year Treasury yield Horizon: January 1, 2008 - March 17, 2008 Description: Fannie Mae current coupon mortgage yields and option-adjusted spreads, and 10-year Treasury yields, decline after FOMC announcements. Note: Vertical dotted lines denote FOMC announcements on 3/7 and 3/11 Source: Bloomberg and Lehman Brothers Page 2 Top panel (3) Title: Spread between Jumbo and Conforming Mortgage Rates Remains Wide Series: Jumbo mortgage rates, conforming mortgage rates, and spread Horizon: January 1, 2007 - March 14, 2008 Description: The spread between jumbo and conforming rates remains wide. Source: Bloomberg Middle panel (4) Title: Prices Across ABX Tranches Decline Further Series: Price on AAA, AA, A, BBB, and BBB- rated tranches of the ABX 07-01 vintage Horizon: January 1, 2007 - March 14, 2008 Description: Prices on AAA, AA, A, BBB, and BBB- rated tranches of the ABX 07-01 vintage have continued to decline. Source: JP Morgan Bottom panel (5) Title: Fannie Mae and Freddie Mac's CDS Spreads Rise and Equity Prices Decline Series: Credit default swap spreads and equity prices for Fannie Mae and Freddie Mac Horizon: January 1, 2007 - March 17, 2008 Description: While credit default swap spreads widened for Fannie Mae and Freddie Mac, their equity prices declined. Source: Markit and Bloomberg Page 3 Top panel (6) Title: Corporate Credit Option-Adjusted Spreads and Yields Series: Investment grade and high-yield corporate debt spreads and yields Horizon: January 1, 2007 - March 14, 2008 Description: Investment grade and high-yield debt option-adjusted spreads widened while yields on high-yield debt and investment grade debt rose. Source: Bloomberg Middle panel (7) Title: Global Credit Default Swap Spreads Widen Series: ITRAXX Crossover Series 7 and Baa CDS spread Horizon: March 1, 2007 - March 14, 2008 Description: ITRAXX Crossover Series 7 spread and Baa CDS spread have continued to widen. Source: Bloomberg Bottom panel (8) Title: U.S. Equity Indices Decline Series: S&P 500 index, Nasdaq index, and S&P 500 financials index Horizon: August 1, 2007 - March 17, 2008 Description: Financial underperforms against U.S. equity indices. Source: Bloomberg Page 4 Top panel (9) Title: Bank Term Funding Pressures Revive: One-Month LIBOR - OIS Spread Series: Spreads between one-month Libor rates and one-month interest rate swap rates for U.S., UK, and Euro-Area Horizon: August 1, 2007 - March 17, 2008 Description: The spreads between one-month Libor rates and one-month interest rate swap rates for U.S., UK, and Euro-Area have risen. Source: Bloomberg Middle panel (10) Title: Three-Month LIBOR - OIS Spread Series: Spreads between three-month Libor rate and three-month interest rate swap rates for U.S., UK, and Euro-Area Horizon: August 1, 2007 - March 17, 2008 Description: The spreads between three-month Libor rate and three-month interest rate swap rates for U.S., UK, and Euro-Area have risen. Source: Bloomberg Page 5 Top panel (11) Federal Reserve Term Auction Facility Results Federal Reserve Term Auction Facility: Auction Settlement Term Amount Minimum Bid Rate Stop-out Rate Propositions Bid/Cover Bidders 12/20/2007 28 Days $20 b 4.17% 4.65% $61.6 b 3.08 93 12/27/2007 35 Days $20 b 4.15% 4.67% $57.7 b 2.88 73 1/17/2008 28 Days $30 b 3.88% 3.95% $55.5 b 1.85 56 1/31/2008 28 Days $30 b 3.10% 3.12% $37.5 b 1.25 52 2/14/2008 28 Days $30 b 2.86% 3.01% $58.4 b 1.95 66 2/28/2008 28 Days $30 b 2.81% 3.08% $68.0 b 2.27 72 3/13/2008 28 Days $50 b 2.39% 2.80% $92.6 b 1.85 82 Source: Federal Reserve Board Bottom panel (12) Title: Composition of Federal Reserve's Balance Sheet Series: Federal Reserve's permanent purchases, term auction facility, FX swaps, long-term RPS, TSLF, term discount window borrowing, single-tranche repo, and short-term RPs Horizon: July 1, 2007 - April 30, 2008 Description: Composition of Federal Reserve's balance sheet changes as it introduces new policy actions. *RPs with an original maturity of at least 7 days are long-term. Note: The sum of all components equals net autonomous factors plus reserve balances Source: Federal Reserve Bank of New York Page 6 Top panel (13) Title: Commodity Prices Continue to Rise Series: GSCI spot, energy, agriculture, and industrial metals indices Horizon: January 1, 2007 - March 17, 2008 Description: GSCI spot, energy, agriculture, and industrial metals indices continue to rise. Source: Bloomberg Middle panel (14) Title: Dollar Weakens Series: Yen-USD, Euro-USD, and broad trade-weighted dollar Horizon: January 1, 2006 - March 17, 2008 Description: Since mid-June 2007, the U.S. dollar has softened against the Euro and Japanese Yen. Consistent with this, the broad trade-weighted dollar has also been declining. Source: Bloomberg and Federal Reserve Board Bottom panel (15) Title: Chinese Yuan 12-Month Implied Appreciation Series: Chinese Yuan 12-Month implied appreciation Horizon: January 1, 2007 - March 17, 2008 Description: Chinese Yuan 12-Month implied appreciation increases. Source: Reuters Page 7 Top panel (16) Title: TIPS Implied Average Rate of Inflation: 5-10 Year Horizon Series: Federal Reserve Board's 5-10 Year horizon TIPS inflation compensation and Barclays' 5-10 Year horizon TIPS inflation compensation Horizon: August 1, 2007 - March 14, 2008 Description: TIPS inflation compensation over a 5-10 year horizon has increased significantly since the December FOMC meeting as measured by both the Federal Reserve Board and Barclays. Recently, TIPS inflation compensation over a 5-10 year horizon has declined modestly. Source: Federal Reserve Board and Barclays Capital Middle panel (17) Title: Fed Funds Futures Curve Shifts Down Series: Fed funds futures curve as of 12/10/2007, 1/29/2008, and 3/17/2008 Horizon: December 10, 2007 - March 17, 2008 Description: The fed funds futures curve has shifted lower since the January FOMC meeting. Source: Bloomberg Bottom panel (18) Title: Eurodollar Futures Curve Also Shifts Lower Series: Eurodollar futures curve as of 12/10/2007, 1/29/2008, and 3/17/2008 Horizon: December 10, 2007 - March 17, 2008 Description: The Eurodollar futures curve has steepened and shifted lower since the January FOMC meeting. Source: Bloomberg APPENDIX: Reference Exhibits Page 8 Top panel (19) Title: Implied Volatility Increases Series: VIX index, MOVE index, 1-month Euro-Dollar volatility index, and 1-month Dollar-Yen volatility index Horizon: January 1, 2007 - March 17, 2008 Description: During the intermeeting period, implied volatility across asset classes has increased. Source: Bloomberg Middle panel (20) Title: Treasury Yield Curve Shifts Lower and Continues to Steepen Series: Constant maturity Treasury yield curve as of 12/11/2007, 1/29/2008, and 3/17/2008 Horizon: December 11, 2007 - March 17, 2008 Description: The Treasury yield curve has shifted lower and steepened since the last FOMC meetings. Source: Bloomberg Bottom panel (21) Title: 10-Year Treasury Inflation Protected and Nominal Treasury Yields Series: 10-Year nominal Treasury yield and 10-Year inflation protected Treasury yield Horizon: January 1, 2007 - March 17, 2008 Description: Both nominal and inflation protected Treasury yields have declined since the last FOMC meeting. Source: Bloomberg Page 9 Top panel (22) Title: GC Repo Market Series: GC Treasury, agency, and agency MBS repo rates Horizon: January 1, 2007 - March 17, 2008 Description: Since November 2007, GC Treasury repo rates have traded with a wider spread to GC agency and agency MBS repo. Source: Federal Reserve Bank of New York Middle panel (23) Title: Probability Distribution on Eurodollar Futures Contract Series: Probability distribution on Eurodollar futures contract as of 1/29/2008 and 3/14/2008 Horizon: January 29, 2008 - March 14, 2008 Description: Since the January FOMC meeting, the probability of a policy rate cut has increased. Source: CME Options Bottom panel (24) Title: Probabilities for Policy Rate Outcomes for March FOMC Meeting Series: Probabilities for a 2.00, 2.25, 2.50, or 2.75 percent target rate at March FOMC meeting Horizon: February 1, 2008 - March 14, 2008 Description: In the days leading up to the FOMC meeting, there was an increase in probabilities for a 2.00 target rate at the March 18 FOMC meeting. Source: Cleveland Fed Page 10 Top panel (25) Title: Distribution of Expected Policy Target Among Primary Dealers Prior to March 18 FOMC Meeting Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by quarter, and market rate for policy expectation by quarter as of 3/10/2008 Horizon: 2008:Q1 - 2009:Q4 Description: There was less dispersion regarding where dealers expect the policy rate to be in the near term as compared to the January 2008 policy survey. Dealers on average expect higher rates than what is currently priced into Eurodollar futures for 2008. Source: Dealer Policy Survey Middle panel (26) Title: Distribution of Expected Policy Target Among Primary Dealers Prior to January 29-30 FOMC Meeting Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by quarter, and market rate for policy expectation by quarter as of 1/23/2008 Horizon: 2008:Q1 - 2009:Q4 Description: Compared to the March policy survey, there is more dispersion of policy rate expectation for 2008 and 2009. Source: Dealer Policy Survey Appendix 2: Materials used by Mr. Madigan Material for FOMC Briefing on Monetary Policy Alternatives Brian Madigan March 18, 2008 Class I FOMC - Restricted Controlled (FR) Table 1: Alternative Language for the March 18, 2008 FOMC Announcement March 18, 2008 [Note: In Appendix 2, Table 1, strong emphasis (bold) has been added to indicate underlined red text in the original document. Emphasis (italic or strike-through) indicates underlined blue text or strike-through blue text (respectively) in the original document. Exception: On the first row of Rationale under Alternative D, emphasis indicates underlined normal text in the original document.] Policy Decision Rationale Alternative A Alternative B Alternative C Alternative D 1. The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-¼ percent. The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 2-½ percent. The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2-¾ percent. The Federal Open Market Committee decided today to keep its target for the federal funds rate at 3 percent. 2. Recent information indicates that the outlook for economic activity has weakened further and that downside risks persist. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to continue to weigh on economic growth over the next few quarters. Recent information indicates that the outlook for economic activity has weakened further and that downside risks persist. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to continue to weigh on economic growth over the next few quarters. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to continue to weigh on economic growth. Recent policy actions should help to promote moderate growth over time, but downside risks to growth remain. Growth in consumer spending has slowed, labor markets have softened, and financial markets remain under considerable stress. Although downside risks to growth remain, recent policy actions should help to promote moderate growth over time. 3. Inflation has been elevated, and some measures indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be Inflation has been elevated, and some measures indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be Inflation has been elevated, and upward pressure on inflation could result from several factors, including further increases in energy, commodity, and other import prices. Although the Committee expects inflation to moderate in coming quarters, the upside risks to the outlook for inflation have increased. The Committee will continue to monitor inflation developments carefully. Inflation has been elevated, and upward pressure on inflation could result from several factors, including further increases in energy, commodity, and other import prices. Although the Committee expects inflation to moderate in coming quarters, the upside risks to the outlook for inflation have increased. The Committee will continue to monitor inflation developments carefully. Alternative A necessary to continue to monitor inflation developments carefully. 4. Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, the Assessment Committee judges that the of Risk downside risks to growth remain outweigh the upside risks to inflation. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability. Alternative B Alternative C Alternative D The Committee judges that the risks to growth outweigh the risks to inflation, particularly in light of stresses in financial markets. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address the evolving risks. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to promote price stability and sustainable economic growth. necessary to continue to monitor inflation developments carefully. Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks. Return to top Home | Monetary policy | FOMC | FOMC transcripts Accessibility | Contact Us Last update: February 21, 2014
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