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Accessible Version Meeting of the Federal Open Market Committee November 23, 2010 Presentation Materials Presentation Materials (PDF) Pages 211 to 238 of the Transcript Appendix 1: Materials used by Mr. Sack Material for FOMC Presentation: Financial Market Developments and Desk Operations Brian Sack November 2, 2010 Class II FOMC Restricted FR Exhibit 1 Topleft panel (1) Title: TIPS Yields Series: Yields for 5year and 10year TIPS Horizon: August 3, 2009 October 29, 2010 Description: TIPS yields declined sharply since the last FOMC meeting. A vertical line marks the FOMC meeting of September 21, 2010. Source: Federal Reserve Board of Governors Topright panel (2) Title: Breakeven Inflation Rates Series: Yields for 5year and 10year breakeven rates Horizon: August 3, 2009 October 29, 2010 Description: Breakeven inflation rates moved significantly higher during the intermeeting period. Source: Federal Reserve Board of Governors Middleleft panel (3) Changes in Yields Since September FOMC BPS 5Year 10Year Nominal Yield 24 10 Real Yield 51 40 BEI Rate 27 29 Source: Federal Reserve Board of Governors Middleright panel (4) Title: Probability of Balance Sheet Expansion* Series: FRBNY policy survey Horizon: Yearend Description: Market participants have placed the probability of balance sheet expansion at this meeting around 90%. *April and June represent probability over 2year horizon. [Approximate probability of expansion by yearend, as plotted in chart: April 10%, June 12%, August 25%, September 40%, November 95%.] Return to text Source: Federal Reserve Bank of New York Policy Survey Bottomleft panel (5) Title: Modal Forecast of First Rate Hike Series: FRBNY policy survey Horizon: August 2010 October 2012 Description: The expected timing of the first increase in the federal funds rate has been pushed further into the future. Source: Federal Reserve Bank of New York Policy Survey Bottomright panel (6) Title: Implied Volatility of Shortterm Rate (3Month Rate 12 Months Ahead) Series: Short term interest rate Horizon: January 2, 1990 October 29, 2010 Description: The implied volatility of outcomes for shortterm interest rates over the next 12 months has collapsed to very low levels. Source: Federal Reserve Board of Governors Exhibit 2 Topleft panel (7) Title: Corporate Bond Spreads Series: High yield and investment grade corporate debt spreads Horizon: January 1, 2010 October 29, 2010 Description: Corporate yield spreads have continued to narrow during the intermeeting period. Source: Bank of America Topright panel (8) Title: Equity Prices Series: S&P 500 index and Emerging Markets index Horizon: August 3, 2009 October 29, 2010 Description: Equity prices rose sharply during the intermeeting period. Source: Bloomberg Middleleft panel (9) Title: DXY Dollar Index Series: DXY index Horizon: August 3, 2009 October 29, 2010 Description: The DXY dollar index fell over the intermeeting period, continuing the trend observed since the second quarter. Source: Bloomberg Middleright panel (10) Title: Risk Reversal for EuroDollar Rate Series: 25delta eurodollar risk reversal for 12 month horizon Horizon: August 3, 2009 October 29, 2010 Description: The market is not pricing in an unusual risk of a sharp dollar decline going forward. Source: Bloomberg Bottomleft panel (11) Title: US Bank Equities Series: S&P Financial Sector, Wells Fargo, JP Morgan, and Bank of America Horizon: August 3, 2009 October 29, 2010 Description: Equity prices for some large financial firms fell during the intermeeting period in response to problems with mortgage foreclosures. Source: Bloomberg Bottomright panel (12) Title: NonAgency RMBS Price Index Series: ABX Home Equity 200602 AAA CDS Index Horizon: July 19, 2006 October 29, 2010 Description: The market for mortgagebacked securities has not been significantly affected by the foreclosure issues because of the guarantee provided by the GSEs. Source: Barclays Capital Exhibit 3 Topleft panel (13) Title: Treasury Purchases for Reinvestment Series: Treasury Purchases Horizon: August 10, 2010 November 1, 2010 Description: Since the August FOMC the Federal Reserve has purchased $65 billion of Treasury securities. Source: Federal Reserve Bank of New York Topright panel (14) Title: Duration of SOMA Portfolio Series: Treasury, Agency debt, and Agency MBS duration Horizon: January 1, 2006 October 20, 2010 Description: The duration of our recent Treasury purchases roughly matches the average duration of our existing Treasury holdings. Source: Federal Reserve Bank of New York Middleleft panel (15) Expected Structure of LSAP Approach Number of Respondents Initial Announcement Size (Billions) Total Size of Program (Billions) Incremental 11 100 900 Intermediate 25 500 1000 Large 0 N/A N/A Source: Federal Reserve Bank of New York Policy Survey Middleright panel (16) Title: Effect of LSAP on Tenyear Treasury Yield Series: FRBNY policy survey Horizon: N/A Description: Respondents attributed 35 to 40 basis points of movement in the tenyear Treasury yield to a $500 billion shift in the balance sheet. Source: Federal Reserve Bank of New York Policy Survey Bottomleft panel (17) Title: Implied Volatility of Longterm Rate (10Year Rate 3 Years Ahead) Series: Long term interest rate Horizon: April 4, 1994 October 29, 2010 Description: The volatility of the tenyear rate has moved lower in the past three years showing there is not much market concern about our ability to exit from an expanded balance sheet. Source: Barclays Capital Bottomright panel (18) Title: Forward Breakeven Inflation Rate (5Year Rate 5 Years Ahead) Series: Forward breakeven inflation rate Horizon: January 2, 2002 October 29, 2010 Description: The forward breakeven inflation rate has risen onto the upper half of its historical range. Source: Federal Reserve Board of Governors Appendix 2: Materials used by Ms. Weinbach Material for Briefing on FOMC Participants' Economic Projections Gretchen Weinbach November 23, 2010 Class I FOMC Restricted Controlled (FR) Exhibit 1. Central tendencies and ranges of economic projections, 201013 and over the longer run Central tendencies and ranges of economic projections for years 2010 through 2013 and over the longer run. Actual values for years 2005 through 2009. Change in real GDP Percent 2005 2006 2007 2008 2009 2010 2011 2012 2013 Longer Run Actual 2.7 2.4 2.3 (2.8) 0.2 Upper End of Range 2.5 4.0 4.7 5.0 3.0 Upper End of Central Tendency 2.5 3.6 4.5 4.6 2.8 Lower End of Central Tendency 2.4 3.0 3.6 3.5 2.5 Lower End of Range 2.3 2.5 2.6 3.0 2.4 Unemployment rate Percent 2005 2006 2007 2008 2009 2010 2011 2012 2013 Longer Run Actual 5.0 4.5 4.8 6.9 10.0 Upper End of Range 9.8 9.3 8.7 7.9 6.3 Upper End of Central Tendency 9.7 9.1 8.2 7.4 6.0 Lower End of Central Tendency 9.5 8.9 7.7 6.9 5.0 Lower End of Range 9.4 8.2 7.0 5.9 5.0 PCE inflation Percent 2005 2006 2007 2008 2009 2010 2011 2012 2013 Longer Run Actual Upper End of Range 3.3 1.9 3.5 1.7 1.5 1.5 2.2 2.2 2.0 2.0 Upper End of Central Tendency 1.4 1.7 1.8 2.0 2.0 Lower End of Central Tendency 1.2 1.1 1.1 1.2 1.6 Lower End of Range 1.1 0.9 0.6 0.4 1.5 Core PCE inflation Percent 2005 2006 2007 2008 2009 2010 2011 2012 2013 Actual 2.3 2.3 2.4 2.0 1.7 Upper End of Range 1.5 2.0 2.0 2.0 Upper End of Central Tendency 1.1 1.6 1.6 2.0 Lower End of Central Tendency 1.0 0.9 1.0 1.1 Lower End of Range 0.9 0.7 0.6 0.5 Exhibit 2. Economic projections for 2010 (percent) Change in real GDP 2010 2010:H1 2010:H2 Central Tendency 2.4 to 2.5 2.7 to 2.7 2.1 to 2.3 June projections 3.0 to 3.5 3.2 to 3.5 2.9 to 3.6 2.3 to 2.5 2.7 to 2.7 1.9 to 2.3 2.9 to 3.8 3.1 to 3.6 2.6 to 4.0 2.4 2.7 2.0 3.2 3.4 3.0 2010 2010:H1 2010:H2 Central Tendency 1.2 to 1.4 1.0 to 1.0 1.4 to 1.8 June projections 1.0 to 1.1 0.8 to 1.0 1.1 to 1.4 1.1 to 1.5 1.0 to 1.0 1.2 to 2.0 0.9 to 1.8 0.6 to 1.6 0.9 to 2.0 1.3 1.0 1.5 0.9 0.7 1.2 2010 2010:H1 2010:H2 Central Tendency 1.0 to 1.1 1.1 to 1.1 0.9 to 1.1 June projections 0.8 to 1.0 0.7 to 0.9 0.8 to 1.1 Range June projections Memo: Tealbook June Tealbook Unemployment Rate 2010:Q4 Central Tendency 9.5 to 9.7 June projections 9.2 to 9.5 Range June projections Memo: Tealbook June Tealbook 9.4 to 9.8 9.0 to 9.9 9.7 9.5 PCE Inflation Range June projections Memo: Tealbook June Tealbook Core PCE Inflation Range June projections Memo: Tealbook June Tealbook 0.9 to 1.5 1.1 to 1.1 0.7 to 1.9 0.7 to 1.5 0.4 to 1.0 0.7 to 2.0 1.1 1.1 1.0 0.8 0.8 0.8 NOTE: For change in real GDP and inflation, the values for 2010, 2010:H1, and 2010:H2 are at annual rates in percent, measured in terms of Q4/Q4, Q2/Q4, and Q4/Q2, respectively. Exhibit 3. Economic projections for 20112013 and over the longer run (percent) Change in real GDP 2011 2012 2013 Longer run Central Tendency 3.0 to 3.6 3.6 to 4.5 3.5 to 4.6 2.5 to 2.8 June projections 3.5 to 4.2 3.5 to 4.5 2.5 to 2.8 2.5 to 4.0 2.6 to 4.7 3.0 to 5.0 2.4 to 3.0 2.9 to 4.5 2.8 to 5.0 2.4 to 3.0 3.6 4.7 4.7 2.8 3.7 4.8 4.7 2.5 2011 2012 2013 Longer run Central Tendency 8.9 to 9.1 7.7 to 8.2 6.9 to 7.4 5.0 to 6.0 June projections 8.3 to 8.7 7.1 to 7.5 5.0 to 5.3 8.2 to 9.3 7.0 to 8.7 5.9 to 7.9 5.0 to 6.3 7.6 to 8.9 6.8 to 7.9 5.0 to 6.3 9.0 7.9 7.1 5.2 8.6 7.1 5.8 5.2 2011 2012 2013 Longer run Central Tendency 1.1 to 1.7 1.1 to 1.8 1.2 to 2.0 1.6 to 2.0 June projections 1.1 to 1.6 1.0 to 1.7 1.7 to 2.0 0.9 to 2.2 0.6 to 2.2 0.4 to 2.0 1.5 to 2.0 0.8 to 2.4 0.5 to 2.2 1.5 to 2.0 1.1 1.1 1.2 2.0 1.0 1.0 1.2 2.0 2011 2012 2013 Central Tendency 0.9 to 1.6 1.0 to 1.6 1.1 to 2.0 June projections 0.9 to 1.3 1.0 to 1.5 0.7 to 2.0 0.6 to 2.0 0.5 to 2.0 0.6 to 2.4 0.4 to 2.2 1.0 1.0 1.2 0.8 1.0 1.2 Range June projections Memo: Tealbook June Tealbook Unemployment rate Range June projections Memo: Tealbook June Tealbook PCE inflation Range June projections Memo: Tealbook June Tealbook Core PCE inflation Range June projections Memo: Tealbook June Tealbook Exhibit 4. Risks and uncertainty in economic projections Topleft panel Uncertainty about GDP growth Number of participants Lower Similar Higher November projections 0 2 16 June projections 0 3 14 Topright panel Risks to GDP growth Number of participants Downside Balanced Upside November projections 7 10 1 June projections 9 8 0 Bottomleft panel Uncertainty about PCE inflation Number of participants Lower Similar Higher November projections 1 3 14 June projections 1 3 13 Bottomright panel Risks to PCE inflation Number of participants Downside Balanced Upside November projections 5 11 2 June projections 4 12 1 Appendix 3: Materials used by Mr. English Material for FOMC Briefing on Monetary Policy Alternatives Bill English November 3, 2010 Class I FOMC Restricted Controlled (FR) September FOMC Statement Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term. Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longerterm inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate. 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. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate. [Note: In the November FOMC Statement Alternatives, strong emphasis (bold) indicates bold red underlined text in the original document, emphasis (italics) indicates bold blue underlined (or, as indicated, strikethrough) text in the original document, and strikethrough text indicates strikethrough text in the original document.] November FOMC StatementAlternative A Information received since the Federal Open Market Committee met in August September indicates confirms that the pace of recovery in output and employment has slowed in recent months continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term. Longerterm inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters. 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 currently at levels somewhat low below those, relative to levels that the Committee judges to be most consistent, over the longer run, with its dual mandate. to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longerterm inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, it judges that progress toward its objectives has been unacceptably slow. To promote a stronger pace of economic recovery and to return inflation, over time, to levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. and In addition, the Committee intends to purchase an additional a further $1 trillion of longerterm Treasury securities by the end of 2011, an average a pace of approximately about $70 billion of purchases per month. The Committee expects to will maintain the target range for the federal funds rate at 0 to ¼ percent at least until mid2012, so long as: The unemployment rate remains elevated; the Committee continues to anticipate that, with such a policy stance, will not lead to rates of inflation in the intermediate term will not that exceed the levels that it deems consistent with its mandate; and longerterm inflation expectations remain well anchored. 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. The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if as needed to support strengthen the economic recovery and to return move inflation, over time, to levels consistent with its mandate. November FOMC StatementAlternative B Information received since the Federal Open Market Committee met in August September indicates confirms that the pace of recovery in output and employment has slowed in recent months continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term. Longerterm inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters. 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 currently at levels somewhat low below, relative to levels that the Committee judges to be most consistent, over the longer run, with its dual mandate. to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longerterm inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, it judges that progress toward its objectives has been unacceptably slow. To promote a stronger pace of economic recovery and to return inflation, over time, to levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. and In addition, the Committee intends to purchase an additional a further $600 billion of longerterm Treasury securities by the end of the second quarter of 2011, an average a pace of about $75 billion of purchases per month. 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. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate. In particular, the Committee will regularly review the pace of its securities purchases and the overall size of the assetpurchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability. November FOMC StatementAlternative C Information received since the Federal Open Market Committee met in August September indicates confirms that the pace of recovery in output and employment has slowed in recent months continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be remain modest in the near term. Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longerterm inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate. 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. The Committee also will maintain continue the its existing policy of reinvesting principal payments from its securities holdings to maintain the size of its securities holdings at current levels. The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate. November FOMC StatementAlternative D Information received since the Federal Open Market Committee met in August September indicates that the pace of economic recovery in output and employment has slowed in recent months is proceeding. Household income and spending are is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit., and business spending on equipment and software is rising., though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. The contraction in bank lending has slowed continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term. Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longerterm inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate. The Committee will decided to maintain the target range for the federal funds rate at 0 to ¼ percent and continues to 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 for an extended period some time. For the time being, the Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate anticipates that it will gradually begin to remove policy accommodation at the appropriate time to promote maximum employment and price stability. September 2010 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 longrun 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 maintain the total face value of domestic securities held in the System Open Market Account at approximately $2 trillion by reinvesting principal payments from agency debt and agency mortgagebacked securities in longerterm 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. [Note: In the November 2010 FOMC Directive Alternatives, strong emphasis (bold) indicates bold red underlined text in the original document, emphasis (italics) indicates bold red text in the original document, and strikethrough text indicates strikethrough text in the original document.] November 2010 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 longrun 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 longerterm Treasury securities by the end of December 2011 in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $3 trillion. The Committee also directs the Desk to maintain the total face value of domestic securities held in the System Open Market Account at approximately $2 trillion by reinvesting principal payments from agency debt and agency mortgagebacked securities in longerterm 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. November 2010 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 longrun 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 longerterm Treasury securities by the end of June 2011 in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion. The Committee also directs the Desk to maintain the total face value of domestic securities held in the System Open Market Account at approximately $2 trillion by reinvesting principal payments from agency debt and agency mortgagebacked securities in longerterm 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. November 2010 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 longrun 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 maintain the total face value of domestic securities held in the System Open Market Account at approximately $2 trillion by reinvesting principal payments from agency debt and agency mortgagebacked securities in longerterm 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. November 2010 FOMC Directive Alternative D The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its longrun 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 maintain the total face value of domestic securities held in the System Open Market Account at approximately $2 trillion by reinvesting principal payments from agency debt and agency mortgagebacked securities in longerterm 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. Appendix 4: Materials used by Mr. Sack Material for FOMC Presentation: Operational Implications of Policy Alternatives Brian Sack November 3, 2010 Class II FOMC Restricted FR Exhibit 1 Topleft panel (1) Title: Monthly Pace of Purchases Series: Agency, Treasury, and MBS purchases Horizon: January 1, 2009 July 1, 2011 Description: The projected path of Treasury purchases would average $110 billion a month. Source: Federal Reserve Bank of New York Topright panel (2) Title: Proposed Distribution vs. Current Reinvestment Program Series: Treasury distribution Horizon: N/A Description: Proposed distribution of Treasury purchases across different maturities for both Alt B ($600B LSAP) and Alt C (reinvestment only). Source: Federal Reserve Bank of New York Middleleft panel (3) Title: Amount of Domestic Securities Held in SOMA Series: SOMA Holdings Horizon: December 2010 December 2020 Description: Total SOMA holdings under Alt B and Alt C are estimated to be in line after 2016. Source: Federal Reserve Bank of New York Middleright panel (4) Title: Annual Net Income Projections Series: Net Income Horizon: December 2009 December 2020 Description: Alt B increases the expected stream of net income produced by SOMA for the next several years; however, eventually the additional assets lower the expected income stream. Source: Federal Reserve Bank of New York Bottomleft panel (5) Title: Income Sensitivity to Higher ShortTerm Rates (+100BPS) Series: Interest rates 100 BPS higher than Tealbook assumptions Horizon: January 2011 January 2020 Description: Over the ten year period, the cumulative difference in the income realized under the risk scenario versus the Alt B scenario is about $50 billion. Source: Federal Reserve Bank of New York Bottomright panel (6) Title: Unrealized P&L Series: Unrealized P&L Horizon: December 2010 December 2020 Description: The portfolio is projected to swing from the considerable unrealized capital gains to sizable unrealized capital losses. Source: Federal Reserve Board of Governors Statement Regarding Purchases of Treasury Securities On November 3, 2010, the Federal Open Market Committee (FOMC) decided to expand the Federal Reserve's holdings of securities in the System Open Market Account (SOMA) to promote a stronger pace of economic recovery and to return inflation, over time, to levels consistent with its mandate. In particular, the FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase an additional $600 billion of longerterm Treasury securities by the end of the second quarter of 2011. The FOMC also directed the Desk to continue to reinvest principal payments from agency debt and agency mortgagebacked securities into longerterm Treasury securities. Based on current estimates, the Desk expects to reinvest $250 to $300 billion over the same period, though the realized amount of reinvestment will depend on the evolution of actual repayments. Taken together, the Desk anticipates conducting $850 to $900 billion of purchases of longerterm Treasury securities through the end of the second quarter, an average pace of roughly $110 billion per month. The Desk plans to distribute these purchases across the following eight maturity sectors based on the approximate weights below: Nominal Coupon Securities by Maturity Range* TIPS** 1½ 2½ Years 2½ 4 Years 4 5½ Years 5½ 7 Years 7 10 Years 10 17 Years 17 30 Years 1½ 30 Years 5% 20% 20% 23% 23% 2% 4% 3% * The ontherun 7year note will be considered part of the 5½ to 7year sector, and the ontherun 10year note will be considered part of the 7 to 10year sector. Return to table ** TIPS weights are based on unadjusted par amounts. Return to table Under this distribution, the Desk anticipates that the assets purchased will have an average duration of between 5 and 6 years. The distribution of purchases could change if market conditions warrant, but such changes would be designed to not significantly alter the average duration of the assets purchased. To provide operational flexibility and to ensure that it is able to purchase the most attractive securities on a relativevalue basis, the Desk is temporarily suspending the 35 percent perissue limit on SOMA holdings under which it has been operating. SOMA holdings will be allowed to move above 35 percent only incrementally, in order to help maintain liquidity and avoid dislocations in individual securities. Purchases associated with balance sheet expansion and those associated with principal reinvestments will be consolidated into one set of operations to be announced under the current monthly cycle. On or around the eighth business day of each month, the Desk will publish a tentative schedule of purchase operations expected to take place through the middle of the following month, as well as the anticipated total amount of purchases to be conducted over that period. The schedule will include a list of operation dates, settlement dates, security types to be purchased (nominal coupons or TIPS), the maturity date range of eligible issues, and an expected range for the size of each operation. The Desk expects to conduct the November 4 and November 8 purchase operations that were announced on October 13, and it plans to publish its first consolidated monthly schedule on November 10 at 2:00 p.m. Purchases will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions operated through the Desk's FedTrade system. Consistent with current practices, the results of each operation will be published on the Federal Reserve Bank of New York's website shortly after each purchase operation has concluded. In order to ensure the transparency of our purchase operations, the Desk will also begin to publish information on the prices paid in individual operations at the end of each monthly calendar period, coinciding with the release of the next period's schedule. Return to top Home | Monetary policy | FOMC | FOMC transcripts Accessibility | Contact Us Last update: January 15, 2016
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