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March 27-28, 2006 Authorized for Public Release Appendix 1: Materials used by Mr. Kos 153 of 167 March 27-28, 2006 Authorized for Public Release 154 of 167 Page 1 of 5 Class II FOMC -- Restricted FR $ € ¥ Percent Current 3-Month Deposit Rates and Rates Implied by Traded Forward Rate Agreements September 3, 2005 – March 24, 2006 Libor Fixing 3M Forward 6M Forward 9M Forward Libor Fixing 3M Forward 6M Forward 9M Forward Libor Fixing 3M Forward 6M Forward 9M Forward Percent 5.5 5.5 9/20/05 FO MC 5.0 11/01/05 FO MC 12/13/05 FO MC 5.0 4.5 4.5 1/31/06 FO MC 4.0 12/01/05 ECB +25 bp 3.5 3/02/06 ECB +25bp 4.0 3.5 3.0 3.0 2.5 2.5 2.0 2.0 9/3 10/3 11/3 12/3 1/3 2/3 3/3 Percent Percent 0.7 0.7 End of Q EP announced 3/09/06 0.6 0.6 0.5 0.5 0.4 0.4 Japan 0.3 0.3 0.2 0.2 0.1 0.1 0.0 0.0 9/3 10/3 12/3 1/3 2/3 3/3 Spread Between 10- and 2-Year Treasury Notes June 1, 2004 – March 24, 2006 Percent 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 -0.25 6/04 11/3 9/04 12/04 3/05 6/05 9/05 Percent 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 -0.25 12/05 3/06 March 27-28, 2006 Authorized for Public Release 155 of 167 Class II FOMC -- Restricted FR Trillion Yen Page 2 of 5 BoJ Current Account Balances 10-Day Moving Average January 1, 2001 – March 24, 2006 Percent Japan Core CPI ex Fresh Food, YoY January 2001 – February 2006 1.00 35 0.75 3/19/01: BoJ starts QEP 30 0.50 3/09/06: BoJ announces end of QEP 25 0.25 0.00 20 -0.25 15 -0.50 -0.75 10 Balance on 3/24/06: ¥30.115 tn 5 -1.00 -1.25 0 2001 2002 2003 2004 2005 Japanese Bank Lending, YoY Growth January 2001 – February 2006 Percent 0.50 0.00 -0.50 -1.00 -1.50 -2.00 -2.50 -3.00 -3.50 -4.00 -4.50 -5.00 -5.50 2001 2002 2003 2005 Index 1/4/2001 = 100 150 140 130 120 110 100 90 80 70 60 50 40 30 2001 2006 2002 2003 2004 2005 2006 Japanese Equity Indices January 4, 2001 – March 24, 2006 Topix Index Topix Bank Index 2002 2003 2004 2005 2- and 5-Year Japanese Government Note Yields January 4, 2001 – March 24, 2006 Percent 1.50 2004 -1.50 2001 2006 2006 Percent 1.50 3/19/01: BoJ starts QEP 3/09/06: BoJ announces end of QEP 1.25 1.00 1.25 1.00 5-Year Yield 0.75 0.75 0.50 0.50 2-Year Yield 0.25 0.25 0.00 0.00 1/01 7/01 1/02 7/02 1/03 7/03 1/04 7/04 1/05 7/05 1/06 March 27-28, 2006 Authorized for Public Release 156 of 167 Class II FOMC -- Restricted FR Page 3 of 5 Select European Equity Indices January 3, 2005 – March 24, 2006 Index 1/3/05 = 100 Index 1/3/05 = 100 140 140 Dow Jones Euro Stoxx 130 130 120 120 DAX 110 CAC 110 FTS E 100 100 100 90 90 1/1 2/1 3/1 4/1 5/1 6/1 7/1 10-Year German Bund January 3, 2005- March 24, 2006 Percent 4.00 3.75 3.50 3.25 3.00 2.75 1/3 4/3 7/3 10/3 1/3 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 German IFO Survey of Business Expectations Index January 2005- March 2006 2/24/2004 = 100 105 104 103 102 101 100 99 98 97 96 95 94 93 92 91 90 1/05 4/05 7/05 10/05 1/06 Select Foreign Currency Performance Against the Dollar January 31, 2006 – March 24, 2006 Percent JPY EUR PLN MXN AUD NZD ISK Percent 0 0 -3 -3 -6 -6 -9 -9 -12 -12 -15 -15 March 27-28, 2006 Authorized for Public Release 157 of 167 Class II FOMC -- Restricted FR Page 4 of 5 Emerging Market and High Yield Debt Spreads October 1, 2002 – March 20, 2006 Basis Points 1100 Basis Points 1100 900 900 700 700 500 500 EMBI+ 300 300 High Yield Source: JP M organ and M errill Lynch 100 10/02 1/03 4/03 7/03 10/03 100 1/04 4/04 7/04 10/04 1/05 4/05 7/05 10/05 U.S High-Yield Corporate Issuance 1988 – 2006 $ Billions 160 1/06 $ Billions 160 140 BB 140 120 B+, B 120 100 B- and below 100 80 80 Source: SDC 60 60 40 40 20 20 0 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Trailing 12-Month High Yield Default Rate January 1988 – February 2006 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% Source: Moody’s 0% 1988 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 March 27-28, 2006 Authorized for Public Release 158 of 167 Class II FOMC -- Restricted FR Page 5 of 5 Fed Funds Rate Behavior Over Recent Maintenance Periods Percent Effective Rate 5.00 Target Rate Intervention Rate High = 5% High = 5.75% High = 6.5% 4.75 4.50 4.25 Low = 4% Low = 1% MP Ending March 1 MP Ending March 15 MP Ending March 29 4.00 2/16 2/20 2/22 2/24 2/28 3/2 3/6 3/8 3/10 3/14 3/16 3/20 3/22 3/24 3/28 Reserve Balances Held by the Banking System and One Money Center Bank* Balances Held by One Money Center Bank Millions Total Balances Borrowing 30,000 MP Ending March 1 MP Ending March 15 MP Ending March 29** 25,000 20,000 System Required Operating Balances*** 15,000 10,000 One Bank's Required Operating Balances*** 5,000 0 2/16 2/20 2/22 2/24 2/28 3/2 3/6 3/8 3/10 3/14 3/16 3/20 3/22 3/24 3/28 *This bank had a $4.1 billion “as of” adjustment this and last maintenance period **Data beyond 3/26/06 are projections ***Required Operating Balances are equal to: Required Reserves – Applied Vault Cash + Required Clearing Balances – “As of” Adjustments March 27-28, 2006 Authorized for Public Release Appendix 2: Materials used by Mr. Reinhart 159 of 167 March 27-28, 2006 Authorized for Public Release 160 of 167 Class I FOMC – Restricted Controlled FR Material for FOMC Briefing on Monetary Policy Alternatives Vincent R. Reinhart March 28, 2006 March 27-28, 2006 Authorized for Public Release Page 1 of 5 161 of 167 Class I FOMC - Restricted Controlled FR March 27-28, 2006 Authorized for Public Release Page 2 of 5 162 of 167 Class I FOMC - Restricted Controlled FR March 27-28, 2006 Authorized for Public Release Page 3 of 5 163 of 167 Class I FOMC - Restricted Controlled FR March 27-28, 2006 Authorized for Public Release Page 4 of 5 164 of 167 Class I FOMC - Restricted Controlled FR March 27-28, 2006 Authorized for Public Release 165 of 167 Class I FOMC - Restricted Controlled FR Table 1: Alternative Language for the March FOMC Announcement (March 28, 2006) January FOMC Policy Decision 1. The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4½ percent. 2. Although recent economic data have been uneven, the expansion in economic activity appears solid. Rationale 3. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures. Assessment of Risk 4. The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. 5. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives. Alternative A Alternative B Alternative C The Federal Open Market Committee decided today to keep raise its target for the federal funds rate unchanged by 25 basis points to at 4½ percent. The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4¾4½ percent. The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4¾4½ percent. The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded in the current quarter, and the underlying pace of expansion appears to be solid. Resource utilization has risen further this year. Some recent data and anecdotal information suggest that the housing market is moderating, which the Committee believes will likely contribute to a slowing in economic growth to a more sustainable pace. In addition to possible increases in resource utilization, the elevated prices of energy and other commodities have the potential to add to inflation pressures going forward. As yet, however, the runup in those prices has had only a modest effect on core inflation, ongoing productivity gains have held the growth of unit labor costs in check, and inflation expectations remain contained. The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. and the underlying pace of expansion appears to be solid. Economic growth has rebounded strongly in the current quarter, and the underlying pace of expansion appears to be solid. As yet, the run-up in the prices of energy and other commodities has had only a modest effect on core inflation, ongoing productivity gains have held the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures. going forward. In addition to increases in resource utilization, the elevated prices of energy and other commodities have the potential to add to inflation pressures going forward. As yet, however, inflation expectations remain contained. The Committee judges that maintaining the federal funds rate at its current level will likely keep some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. Nevertheless, future policy action will be determined by the evolution of the economic outlook as implied by incoming information. Page 5 of 5 [Unchanged] [Unchanged] The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. [Unchanged] March 27-28, 2006 Authorized for Public Release Appendix 3: Materials used by Ms. Danker 166 of 167 March 27-28, 2006 Authorized for Public Release 167 of 167 Review of Meeting Format • Did the extra time enhance the discussion? Did it allow for more interaction among participants? • Were the economic and policy discussions effectively separated this time? Is that separation one that is worth preserving? • How did this format affect (if at all) the Committee's ability to provide input to the formulation of the statement, both before and during the meeting? • Any suggestions for changes to the two-day format? • The next meeting will of necessity be only one day. Does the experience of yesterday and today suggest any format changes to consider for oneday meetings?
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