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November 2–3, 2010
Authorized for Public Release
Appendix 1: Materials used by Mr. Sack
211 of 238
November 2–3, 2010
Authorized for Public Release
Class II FOMC - Restricted FR
Material for
FOMC Presentation:
Financial Market Developments and Desk Operations
Brian Sack
November 2, 2010
212 of 238
November 2–3, 2010
Authorized for Public Release
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Class II FOMC – Restricted FR
Exhibit 1
(1) TIPS Yields
Percent
3.0
(2) Breakeven Inflation Rates
Percent
4.0
5-Year
10-Year
FOMC
2.0
3.0
FOMC
1.0
2.0
0.0
1.0
-1.0
0.0
08/03/09
12/03/09
04/03/10
08/03/10
5-Year
10-Year
08/03/09
Source: Federal Reserve Board of Governors
12/03/09
04/03/10
08/03/10
Source: Federal Reserve Board of Governors
(3) Changes in Yields Since September FOMC
(4) Probability of Balance Sheet
Expansion*
Percent
100
BPS
5-Year
10-Year
Nominal Yield
-24
-51
-40
BEI Rate
27
By
November
-10
Real Yield
80
29
By Year-End
60
40
20
0
Apr
June
Aug
Sept
Nov
Survey Date
Source: Federal Reserve Board of Governors
*April and June represent probability over 2-year horizon.
Source: Federal Reserve Bank of New York Policy Survey
(5) Modal Forecast of First Rate Hike
Percent
Oct-12
5.0
(6) Implied Volatility of Short-term Rate
(3-Month Rate 12 Months Ahead)
Jul-12
4.0
Apr-12
Dec-11
Primary
Dealers
Sep-11
Other
Investors
Jun-11
3.0
2.0
Feb-11
Nov-10
1.0
Aug-10
Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10
Survey Date
Source: Federal Reserve Bank of New York Policy Survey
0.0
01/02/90
01/02/95
01/02/00
Source: Federal Reserve Board of Governors
01/02/05
01/02/10
November 2–3, 2010
Authorized for Public Release
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Class II FOMC – Restricted FR
BPS
Exhibit 2
(7) Corporate Bond Spreads
BPS
800
425
High Yield (LHS)
Investment Grade (RHS)
750
(8) Equity Prices
Indexed to
08/03/09
140
375
S&P 500 Index
Emerging Markets Index
130
FOMC
700
325
650
275
600
225
550
175
100
500
125
FOMC
90
120
01/01/10
04/01/10
07/01/10
10/01/10
Source: Bank of America
110
08/03/09
04/03/10
08/03/10
Source: Bloomberg
(9) DXY Dollar Index
Indexed to
08/03/09
12/03/09
(10) Risk Reversal for Euro-Dollar Rate*
Percent
120
2.0
Dollar Depreciation
FOMC
FOMC
110
0.0
100
-2.0
90
-4.0
08/03/09
12/03/09
04/03/10
08/03/10
Source: Bloomberg
Indexed to
08/03/09
140
130
08/03/09
12/03/09
04/03/10
08/03/10
*25-delta risk reversal for 12 month horizon
Source: Bloomberg
(11) US Bank Equities
S&P Financial Sector
Wells Fargo
JP Morgan
BoA
(12) Non-Agency RMBS Price Index*
Price
125
FOMC
100
120
75
110
50
100
90
25
80
0
70
08/03/09
Source: Bloomberg
12/03/09
04/03/10
08/03/10
07/19/06
07/19/07
07/19/08
*ABX Home Equity 2006-02 AAA CDS Index
Source: Barclays Capital
07/19/09
07/19/10
November 2–3, 2010
Authorized for Public Release
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Class II FOMC – Restricted FR
Exhibit 3
(13) Treasury Purchases for
Reinvestment
$ Billions
(14) Duration of SOMA Portfolio
Years
6.0
30
Treasury
Agency Debt
Agency MBS
5.0
25
20
4.0
15
3.0
10
2.0
5
1.0
0
0.0
1.5 to 2.5 2.5 to 4
4 to 6
6 to 10 10 to 30
TIPS
Source: Federal Reserve Bank of New York
01/01/06 01/01/07 01/01/08 01/01/09 01/01/10
Source: Federal Reserve Bank of New York
(15) Expected Structure of LSAP
(16) Effect of LSAP on Ten-year
Treasury Yield
BPS
60
Approach
Initial
Total Size of
Number of Announcement
Program
Respondents
Size
(Billions)
(Billions)
40
20
0
Incremental
11
100
900
Intermediate
25
500
1000
-20
Large
0
N/A
N/A
-40
0
250
500
750
1000
$ Billions
Source: Federal Reserve Bank of New York Policy Survey
Source: Federal Reserve Bank of New York Policy Survey
(17) Implied Volatility of Long-term Rate
(10-Year Rate 3 Years Ahead)
160
BPS
Percent
4.0
(18) Forward Breakeven Inflation Rate
(5-Year Rate 5 Years Ahead)
140
3.0
120
100
2.0
80
60
04/04/94
1.0
04/04/98
Source: Barclays Capital
04/04/02
04/04/06
04/04/10
01/02/02
01/02/04
01/02/06
Source: Federal Reserve Board of Governors
01/02/08
01/02/10
November 2–3, 2010
Authorized for Public Release
Appendix 2: Materials used by Ms. Weinbach
216 of 238
November 2–3, 2010
Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Material for Briefing on
FOMC Participants’ Economic Projections
Gretchen Weinbach
November 2-3, 2010
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November 2–3, 2010
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Exhibit 1. Central tendencies and ranges of economic projections, 2010–13 and over the longer run
Percent
Change in real GDP
5
Central tendency of projections
Range of projections
4
3
2
Actual
1
+
0
_
1
2
2005
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
Unemployment rate
10
9
8
7
6
5
2005
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
PCE inflation
3
2
1
2005
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
Core PCE inflation
3
2
1
2005
2006
2007
2008
2009
2010
2011
2012
2013
November 2–3, 2010
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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
3.2
2.7
3.4
2.0
3.0
Range
June projections
Memo: Tealbook
June Tealbook
Unemployment Rate
2010:Q4
Central Tendency
June projections
Range
June projections
Memo: Tealbook
June Tealbook
9.5 to 9.7
9.2 to 9.5
9.4 to 9.8
9.0 to 9.9
9.7
9.5
PCE Inflation
2010
2010:H1
2010:H2
Central Tendency
June projections
1.2 to 1.4
1.0 to 1.1
1.0 to 1.0
0.8 to 1.0
1.4 to 1.8
1.1 to 1.4
Range
June projections
1.1 to 1.5
0.9 to 1.8
1.0 to 1.0
0.6 to 1.6
1.2 to 2.0
0.9 to 2.0
Memo: Tealbook
June Tealbook
1.3
0.9
1.0
0.7
1.5
1.2
Core PCE Inflation
2010
2010:H1
2010:H2
Central Tendency
June projections
1.0 to 1.1
0.8 to 1.0
1.1 to 1.1
0.7 to 0.9
0.9 to 1.1
0.8 to 1.1
Range
June projections
0.9 to 1.5
0.7 to 1.5
1.1 to 1.1
0.4 to 1.0
0.7 to 1.9
0.7 to 2.0
Memo: Tealbook
June Tealbook
1.1
0.8
1.1
0.8
1.0
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.
November 2–3, 2010
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Exhibit 3. Economic projections for 2011-2013 and over the longer run (percent)
2011
Central Tendency
Change in real GDP
2012
2013
Longer run
3.0 to 3.6
3.5 to 4.2
3.6 to 4.5
3.5 to 4.5
3.5 to 4.6
---
2.5 to 2.8
2.5 to 2.8
2.5 to 4.0
2.9 to 4.5
2.6 to 4.7
2.8 to 5.0
3.0 to 5.0
---
2.4 to 3.0
2.4 to 3.0
Memo: Tealbook
3.6
4.7
4.7
2.8
June Tealbook
3.7
4.8
4.7
2.5
2013
Longer run
June projections
Range
June projections
2011
Central Tendency
Unemployment rate
2012
8.9 to 9.1
8.3 to 8.7
7.7 to 8.2
7.1 to 7.5
6.9 to 7.4
---
5.0 to 6.0
5.0 to 5.3
8.2 to 9.3
7.6 to 8.9
7.0 to 8.7
6.8 to 7.9
5.9 to 7.9
---
5.0 to 6.3
5.0 to 6.3
Memo: Tealbook
9.0
7.9
7.1
5.2
June Tealbook
8.6
7.1
5.8
5.2
2013
Longer run
June projections
Range
June projections
2011
Central Tendency
PCE inflation
2012
1.1 to 1.7
1.1 to 1.6
1.1 to 1.8
1.0 to 1.7
1.2 to 2.0
---
1.6 to 2.0
1.7 to 2.0
0.9 to 2.2
0.8 to 2.4
0.6 to 2.2
0.5 to 2.2
0.4 to 2.0
---
1.5 to 2.0
1.5 to 2.0
Memo: Tealbook
1.1
1.1
1.2
2.0
June Tealbook
1.0
1.0
1.2
2.0
June projections
Range
June projections
2011
Central Tendency
Core PCE inflation
2012
2013
0.9 to 1.6
0.9 to 1.3
1.0 to 1.6
1.0 to 1.5
1.1 to 2.0
---
0.7 to 2.0
0.6 to 2.4
0.6 to 2.0
0.4 to 2.2
0.5 to 2.0
---
Memo: Tealbook
1.0
1.0
1.2
June Tealbook
0.8
1.0
1.2
June projections
Range
June projections
November 2–3, 2010
Authorized for Public Release
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Exhibit 4. Risks and uncertainty in economic projections
Number of participants
Number of participants
Risks to GDP growth
Uncertainty about GDP growth
November projections
June projections
18
November projections
June projections
18
16
14
12
10
10
8
8
6
6
4
4
2
Similar
14
12
Lower
16
2
Downside
Higher
Balanced
Number of participants
Uncertainty about PCE inflation
Upside
Number of participants
Risks to PCE inflation
18
16
12
10
10
8
8
6
6
4
4
2
Higher
14
12
Similar
16
14
Lower
18
2
Downside
Balanced
Upside
November 2–3, 2010
Authorized for Public Release
Appendix 3: Materials used by Mr. English
222 of 238
November 2–3, 2010
Authorized for Public Release
223 of 238
Class I FOMC – Restricted Controlled (FR)
Material for
FOMC Briefing on Monetary Policy Alternatives
Bill English
November 3, 2010
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November 2–3, 2010
Authorized for Public Release
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SEPTEMBER FOMC STATEMENT
1. 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.
2. 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 longer-term inflation expectations stable, inflation is likely to remain subdued
for some time before rising to levels the Committee considers consistent with its mandate.
3. 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.
4. 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.
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November 2–3, 2010
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NOVEMBER FOMC STATEMENT—ALTERNATIVE A
1. 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. Longer-term inflation expectations have remained stable, but measures of
underlying inflation have trended lower in recent quarters.
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 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 longer-term 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.
3. 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 longer-term Treasury securities by the end of 2011,
an average a pace of approximately about $70 billion of purchases per month.
4. The Committee expects to will maintain the target range for the federal funds rate at 0 to ¼
percent at least until mid-2012, 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 longer-term 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.
5. 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.
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NOVEMBER FOMC STATEMENT—ALTERNATIVE B
1. 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. Longer-term inflation expectations have remained stable, but measures of
underlying inflation have trended lower in recent quarters.
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 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 longer-term 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.
3. 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 longer-term Treasury securities by the
end of the second quarter of 2011, an average a pace of about $75 billion of purchases
per month.
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 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 asset-purchase program in
light of incoming information and will adjust the program as needed to best foster
maximum employment and price stability.
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NOVEMBER FOMC STATEMENT—ALTERNATIVE C
1. 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.
2. 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 longer-term inflation expectations stable, inflation is likely to remain subdued
for some time before rising to levels the Committee considers consistent with its mandate.
3. 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.
4. 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.
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November 2–3, 2010
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NOVEMBER FOMC STATEMENT—ALTERNATIVE D
1. 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 longer-term inflation expectations stable, inflation is likely to remain subdued
for some time before rising to levels the Committee considers consistent with its mandate.
2. 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.
3. 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.
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November 2–3, 2010
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229 of 238
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
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
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 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.
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November 2–3, 2010
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230 of 238
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
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 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 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 11
November 2–3, 2010
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231 of 238
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
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 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 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.
9 of 11
November 2–3, 2010
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232 of 238
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
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
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 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.
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November 2–3, 2010
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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
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
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 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.
11 of 11
November 2–3, 2010
Authorized for Public Release
Appendix 4: Materials used by Mr. Sack
234 of 238
November 2–3, 2010
Authorized for Public Release
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235 of 238
November 2–3, 2010
Authorized for Public Release
236 of 238
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Page 1 of 3
November 2–3, 2010
Authorized for Public Release
237 of 238
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 longer-term 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 mortgage-backed securities into longer-term
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 longer-term 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:
1½ - 2½
Years
5%
Nominal Coupon Securities by Maturity Range*
2½ - 4
4 - 5½
5½ - 7
7 - 10
10 - 17
Years
Years
Years
Years
Years
20%
20%
23%
23%
2%
17 - 30
Years
TIPS**
1½ - 30
Years
4%
3%
*The on-the-run 7-year note will be considered part of the 5½- to 7-year sector, and the on-the-run 10year note will be considered part of the 7- to 10-year sector.
**TIPS weights are based on unadjusted par amounts.
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 relative-value basis, the Desk is temporarily
suspending the 35 percent per-issue limit on SOMA holdings under which it
has been operating. SOMA holdings will be allowed to move above 35
Page 2 of 3
November 2–3, 2010
Authorized for Public Release
238 of 238
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.
Page 3 of 3
@FedFRASER