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November 3–4, 2009 Authorized for Public Release Appendix 1: Materials used by Mr. Sack 177 of 201 November 3–4, 2009 Authorized for Public Release Material for FOMC Presentation: Financial Market Developments and Desk Operations Brian Sack November 3, 2009 178 of 201 November 3–4, 2009 Authorized for Public Release 179 of 201 Class II FOMC – Restricted FR Indexed to 100= 8/1/08 Exhibit 1 (2) Proportion of S&P 500 Companies Exceeding Consensus Earnings Estimates Percent 90 % Positive Surprise Average* (1) US Equity Prices (S&P 500) 110 80 FOMC 100 70 90 60 80 50 70 40 60 30 50 20 08/01/08 12/01/08 04/01/09 08/01/09 Q3-95 Q3-97 Q3-99 Q3-01 Q3-03 Q3-05 Q3-07 Q3-09 *Average computed since 1991 Source: Bloomberg Source: Reuters, Bloomberg (3) GDP Forecasts* Percent Previous Average 6 Indexed to 100= 8/1/08 Average (4) US Equity Indices for Financial Firms 140 5 4 Large Bank Index Regional Bank Index 120 FOMC 3 100 2 1 80 0 -1 60 -2 40 Q3-09 Q4-09 Q1-10 Q2-10 Q4Q4 Q4Q4 Q4Q4 2009 2010 2011 08/01/08 12/01/08 Source: Bloomberg *Range shown is for current survey forecasts 04/01/09 08/01/09 Source: Dealer Policy Survey (5) Corporate Debt Spreads BPS BPS Percentage Points 900 2250 FOMC 2000 12 800 (6) Equity Premium 10 1750 700 1500 600 1250 500 1000 400 8 6 4 750 300 2 High Yield (LHS) 500 Investment Grade (RHS) 200 0 100 -2 250 08/01/08 12/01/08 Source: Bank of America 04/01/09 08/01/09 01/01/95 01/01/99 01/01/03 01/01/07 Source: Federal Reserve Board of Governors November 3–4, 2009 Authorized for Public Release 180 of 201 Class II FOMC – Restricted FR Exhibit 2 (7) Treasury Yields Percent 4.5 # Speeches 30 2-Year 5-Year 10-Year (8) Speeches by FOMC Participants per Month FOMC 25 3.5 20 15 2.5 10 1.5 5 0 0.5 08/01/08 11/01/08 02/01/09 05/01/09 08/01/09 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Source: Bloomberg Source: Bloomberg (9) Implied Federal Funds Rate Percent Oct-06 3.0 Indexed to 100= 8/1/03 (10) US Trade-Weighted Broad Dollar Index 105 2.5 100 10/30/09 9/23/09 95 2.0 90 1.5 85 1.0 80 0.5 75 0.0 70 10/15/09 04/15/10 02/01/11 11/01/11 Source: Federal Reserve Board of Governors Percentage Points 08/01/05 08/01/07 08/01/09 Source: Federal Reserve Board of Governors (11) Risk Reversal Pricing for Euro-Dollar Exchange Rate* 3.0 Demand for protection against USD depreciation 2.0 08/01/03 (12) Breakeven Inflation Rates Percent 3.0 2.5 2.0 1.0 1.5 0.0 1.0 -1.0 0.5 FOMC -2.0 5Y Spot 5Y5Y Forward 0.0 -0.5 -3.0 08/01/08 12/01/08 04/01/09 08/01/09 *Difference in implied volatilities on out-of-money calls and puts for 1-month 25-delta options Source: UBS FOMC -1.0 08/01/07 02/01/08 08/01/08 Source: Barclays Capital 02/01/09 08/01/09 November 3–4, 2009 Authorized for Public Release 181 of 201 Class II FOMC – Restricted FR Exhibit 3 (13) Weekly Pace of Treasury Purchases (14) Distribution of Treasury Purchases $ Billions $ Billions 25 80 70 20 60 50 15 40 30 10 20 5 10 0 0 1-2 Yrs 03/27/09 05/27/09 07/27/09 09/27/09 Source: Federal Reserve Bank of New York BPS (15) Dispersion of Treasury Yields (Fitting Error of Nominal Yield Curve) 70 2-3 Yrs 3-4.5 Yrs 10-17 17-30 Yrs Yrs (16) Average Ask-Side Quote Sizes $ Millions TIPS $ Millions 80 200 70 2-Year (LHS) 5-Year (RHS) 10-Year (RHS) 150 50 7-10 Yrs Source: Federal Reserve Bank of New York 175 60 4.5-7 Yrs 60 125 50 100 40 30 75 30 20 50 20 10 25 10 40 0 0 0 04/01/08 01/01/08 08/01/08 12/01/08 04/01/09 08/01/09 *Average absolute errors for securities with 2-10 year maturities 06/01/08 11/01/08 04/01/09 09/01/09 Source: BrokerTec Source: Federal Reserve Bank of New York Percent 9 8 (17) 10-Year Treasury Yield BPS Regression Model Actual (18) Effects of Large-Scale Asset Purchase Announcements on Rates 0 -25 7 -50 6 -75 5 -100 4 -125 3 -150 04/30/90 04/30/94 04/30/98 04/30/02 04/30/06 Source: Federal Reserve Bank of New York Tsy 2-Yr Tsy 10-Yr Agy 10-Yr Source: Federal Reserve Bank of New York Agy MBS November 3–4, 2009 Authorized for Public Release 182 of 201 Class II FOMC – Restricted FR Exhibit 4 (19) Weekly Pace of Agency MBS Purchases (20) Weekly Pace of Agency Debt Purchases $ Billions $ Billions 35 Actual* 5 Possible Path Actual* Possible Path 30 4 25 3 20 15 2 10 1 5 0 0 12/31/08 03/31/09 06/30/09 09/30/09 12/31/09 03/31/10 12/31/08 03/31/09 06/30/09 09/30/09 12/31/09 03/31/10 *Monthly average *Monthly average Source: Federal Reserve Bank of New York Source: Federal Reserve Bank of New York BPS (21) Fixed-Rate Mortgage Spreads* 175 150 125 (22) Agency Debt Spread* BPS 175 MBS OAS to Treasury 150 MBS OAS to Swap 125 100 100 75 75 50 50 25 25 0 0 -25 -25 -50 08/01/00 -50 08/01/03 08/01/06 08/01/09 08/01/00 08/01/03 08/01/06 08/01/09 * Fannie Mae current coupon spreads *Fannie Mae 5-year benchmark spread to Treasury Source: Barclays Capital Source: Bloomberg Annual BPS (23) Swaption Implied Volatility* $ Billions (24) Concentration of Settled MBS Holdings by Coupon 500 225 200 Current 400 Projection 175 300 150 125 200 100 100 75 50 08/01/02 08/01/04 08/01/06 08/01/08 *3-month forward 10-year swaption implied volatility Source: Barclays Capital 0 3.5% 4% 4.5% 5% 5.5% Source: Federal Reserve Bank of New York 6% 6.5% November 3–4, 2009 Authorized for Public Release 183 of 201 Class II FOMC – Restricted FR $ Billions Exhibit 5 (26) Probability of Using Exit Tools (25) Balance Sheet Assets by Category Percent 100 90 80 70 60 50 40 30 20 10 0 All Other Lending to Systemically Important Institutions Short-Term Liquidity Facilities Outright Asset Holdings 3000 2500 2000 1500 1000 500 0 Mean Range Reverse Repos 08/01/08 11/01/08 02/01/09 05/01/09 08/01/09 (27) Federal Reserve Short-Term Liquidity Facilities (28) Remaining Usage of Liquidity Facilities 1750 FX Liquidity Swaps1 CPFF TAF Volume of Funding Outstanding ($ bil) 33 15 110 Number of Current Borrowers/Issuers 4 13 177 Change in Number of Borrowers/Issuers2 -9 -10 -19 TSLF 1500 PCF PDCF 1250 AMLF 1000 CPFF FX Swaps 750 TAF 500 250 1Number 0 08/01/08 11/01/08 02/01/09 05/01/09 08/01/09 Source: Federal Reserve Bank of New York BPS Asset Sales Source: Dealer Policy Survey Source: Federal Reserve Bank of New York $ Billions Term Deposits 2Change of FX liquidity swap borrowers includes ECB participants only. since previous FOMC meeting. Source: Federal Reserve Bank of New York (29) Annualized Year-End Premium on 2-Month LIBOR 500 (30) Treasury Bill Forward Rates Across Year-End* Percent 6 2006 2007 2008 2009 5 400 4 3 300 2 1 200 0 100 -1 -2 0 Q4-01 Q4-02 Q4-03 Q4-04 Q4-05 Q4-06 Q4-07 Q4-08 Q4-09 10/1 10/15 10/29 11/12 11/26 12/10 *1-week implied forward rates spanning year-end Source: Federal Reserve Bank of New York Source: Bloomberg 12/24 November 3–4, 2009 Authorized for Public Release Appendix 2: Materials used by Mr. Madigan 184 of 201 November 3–4, 2009 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on FOMC Participants’ Economic Projections Brian Madigan 1RYHPEHU 3, 2009 185 of 201 November 3–4, 2009 Authorized for Public Release 186 of 201 Class I FOMC - Restricted Controlled (FR) Exhibit 1. Central tendencies and ranges of economic projections, 2009–12 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 2004 2005 2006 2007 2008 2009 2010 2011 2012 Longer run Percent Unemployment rate 10 9 8 7 6 5 2004 2005 2006 2007 2008 2009 2010 2011 2012 Longer run Percent PCE inflation 3 2 1 2004 2005 2006 2007 2008 2009 2010 2011 2012 Longer run Percent Core PCE inflation 3 2 1 2004 2005 2006 2007 2008 2009 2010 2011 2012 NOTE: Projections of change in realare in the notes product (GDP) and of inflation are values of fourth quarter arethe previous year to the fourth quarter NOTE: Definitions of variables gross domestic to table 1. The data for the actual from the the variables of annual. of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant's projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The June projections were made in conjunction with the FOMC meeting on June 23-24, 2009. The central tendency excludes the three highest and three lowest projections for each variable in each year. The range for a variable in a given year includes all participants' projections, from lowest to highest, for that variable in that year. Page 1 of 4 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 187 of 201 Exhibit 2: Economic Projections for 2009 Real GDP Growth 2009 2009:H1 2009:H2 Central Tendency June projection -0.4 to -0.1 -1.5 to -1.0 -3.6 -3.5 to -3.3 2.9 to 3.5 0.5 to 1.4 Range June projection -0.5 to 0.0 -1.6 to -0.6 -3.6 to -3.5 -4.0 to -3.0 2.7 to 3.7 0.1 to 2.9 Memo: Greenbook June Greenbook -0.3 -1.1 -3.6 -3.3 3.1 1.1 Unemployment Rate 2009:Q4 Central Tendency June projection 9.9 to 10.1 9.8 to 10.1 Range June projection 9.8 to 10.3 9.7 to 10.5 Memo: Greenbook June Greenbook 10.1 10.0 PCE Inflation 2009 2009:H1 2009:H2 Central Tendency June projection 1.1 to 1.2 1.0 to 1.4 -0.1 to 0.0 0.2 to 0.6 2.1 to 2.5 1.8 to 2.5 Range June projection 1.0 to 1.7 1.0 to 1.8 -0.1 to 0.1 -0.1 to 1.0 2.0 to 3.4 1.4 to 3.2 Memo: Greenbook June Greenbook 1.1 1.4 -0.1 0.3 2.4 2.6 2009 2009:H1 2009:H2 Central Tendency June projection 1.4 to 1.5 1.3 to 1.6 1.6 1.8 to 2.0 1.2 to 1.4 0.7 to 1.4 Range June projection 1.3 to 1.6 1.2 to 2.0 1.5 to 1.6 1.5 to 2.0 1.0 to 1.6 0.5 to 2.0 Memo: Greenbook June Greenbook 1.4 1.4 1.6 1.9 1.3 0.9 Core PCE Inflation NOTE: For real GDP growth and inflation, the values for 2009, 2009:H1, and 2009:H2 are at annual rates in percent, measured in terms of Q4/Q4, Q2/Q4, and Q4/Q2, respectively. Page 2 of 4 November 3–4, 2009 Authorized for Public Release 188 of 201 Class I FOMC - Restricted Controlled (FR) Exhibit 3: Economic Projections for 2010-2012 and Longer Run Real GDP Growth 2010 Central Tendency June projection Range June projection Memo: Greenbook June Greenbook 2011 2012 Longer Run 2.5 to 3.5 2.1 to 3.3 2.0 to 4.0 0.8 to 4.0 3.4 3.0 3.4 to 4.5 3.8 to 4.6 2.5 to 4.6 2.3 to 5.0 4.4 4.8 3.5 to 4.8 --2.8 to 5.0 --5.0 5.3 2.5 to 2.8 2.5 to 2.7 2.4 to 3.0 2.4 to 2.8 2.5 2.5 Unemployment Rate 2010 Central Tendency June projection Range June projection Memo: Greenbook June Greenbook 2011 2012 Longer Run 9.3 to 9.7 9.5 to 9.8 8.6 to 10.2 8.5 to 10.6 9.5 9.7 8.2 to 8.6 8.4 to 8.8 7.2 to 8.7 6.8 to 9.2 8.2 8.0 6.8 to 7.5 --6.1 to 7.6 --6.1 --- 5.0 to 5.2 4.8 to 5.0 4.8 to 6.3 4.5 to 6.0 4.8 4.8 PCE Inflation 2010 Central Tendency June projection Range June projection Memo: Greenbook June Greenbook 2011 2012 Longer Run 1.3 to 1.6 1.2 to 1.8 1.1 to 2.0 0.9 to 2.0 1.4 1.1 1.0 to 1.9 1.1 to 2.0 0.6 to 2.4 0.5 to 2.5 1.0 1.2 1.2 to 1.9 --0.2 to 2.3 --1.2 --- 1.7 to 2.0 1.7 to 2.0 1.5 to 2.0 1.5 to 2.1 2.0 2.0 Core PCE Inflation 2010 Central Tendency June projection Range June projection Memo: Greenbook June Greenbook 2011 2012 1.0 to 1.5 1.0 to 1.5 0.9 to 2.0 0.5 to 2.0 1.1 0.8 1.0 to 1.6 0.9 to 1.7 0.5 to 2.4 0.2 to 2.5 1 0.7 1.0 to 1.7 --0.2 to 2.3 --1.1 --- NOTE: See Exhibit 1 for variable definitions. Page 3 of 4 November 3–4, 2009 Authorized for Public Release 189 of 201 Class I FOMC - Restricted Controlled (FR) Exhibit 4. Risks and Uncertainty in Economic Projections Number of participants Number of participants Uncertainty about GDP Growth Risks to GDP Growth November projections June projections November projections June projections 18 18 16 14 12 10 10 8 8 6 6 4 4 2 Similar 14 12 Lower 16 2 Higher Downside Balanced Number of participants Upside Number of participants Uncertainty about PCE Inflation Risks to PCE Inflation 18 16 14 12 12 10 10 8 8 6 6 4 4 2 Similar 16 14 Lower 18 2 Higher Downside Page 4 of 4 Balanced Upside November 3–4, 2009 Authorized for Public Release Appendix 3: Materials used by Mr. Madigan 190 of 201 November 3–4, 2009 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on Monetary Policy Alternatives Brian Madigan November 4, 2009 191 of 201 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 192 of 201 September FOMC Statement Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time. In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted. Page 1 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 193 of 201 November FOMC Statement – Alternative A 1. Information received since the Federal Open Market Committee met in September suggests that economic activity has turned up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Business spending is being damped by firms’ efforts to reduce inventories to bring them into better alignment with sales and by cutbacks in fixed investment. Partly reflecting these factors, the Committee anticipates that the economic recovery will be relatively weak and that slack in resource utilization will diminish quite slowly absent further policy action. 2. Inflation has fallen considerably over the past year. With substantial resource slack likely to continue to dampen cost pressures and with longerterm inflation expectations stable, the Committee expects that inflation will remain subdued for some time. 3. To promote a sustained economic recovery and higher resource utilization, the Committee will provide additional monetary stimulus by increasing its purchases of agency mortgage-backed securities to a total of $1.5 trillion, up from the previously announced amount of $1.25 trillion, and it is also in the process of purchasing up to $200 billion of agency debt. The Committee will extend these purchases through the second quarter of 2010 and gradually slow their pace in order to promote a smooth transition in markets. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities, in light of the evolving economic outlook and conditions in financial markets. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that low rates of resource utilization, subdued inflation, and stable inflation expectations are likely to warrant this exceptionally low range for the federal funds rate for an extended period. The Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted. Page 2 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 194 of 201 November FOMC Statement – Alternative B 1. Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability. 2. With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time. 3. In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. 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 of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted. Page 3 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 195 of 201 November FOMC Statement – Alternative C 1. Information received since the Federal Open Market Committee met in September indicates that a recovery in economic activity is under way. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding. Businesses have made additional progress in bringing inventory stocks into better alignment with sales. The Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth in a context of price stability. 2. Longer-term inflation expectations have been stable, and the Committee expects that, with appropriate monetary policy adjustments, inflation will remain at levels consistent with price stability. 3. At this meeting, the Committee maintained the target range for the federal funds rate at its exceptionally low level of 0 to ¼ percent, and it anticipates that economic conditions are likely to warrant low levels of the federal funds rate for some time. In view of continued improvements in financial market conditions and the economic outlook, the Committee decided to cap its purchases of agency mortgage-backed securities at $1.1 trillion and its purchases of agency debt at $160 billion. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of January 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted. Page 4 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 196 of 201 Possible Sequence of Forward Guidance and Policy Actions ‐‐ Revised 1. Language from the September 2009 statement In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. 2. Language from the November 2009 statement Alternative A. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that low rates of resource utilization, subdued inflation, and stable inflation expectations are likely to warrant this exceptionally low range for the federal funds rate for an extended period. The Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. Alternative B. In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. 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 of the federal funds rate for an extended period. Alternative C. At this meeting, the Committee maintained the target range for the federal funds rate at its exceptionally low level of 0 to ¼ percent, and it anticipates that economic conditions are likely to warrant low levels of the federal funds rate for some time. 3. Economic recovery is sufficiently established In these circumstances, 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 of the federal funds rate for some time. (continued on next page) Page 5 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 197 of 201 4. Policy firming is likely soon In these circumstances, the Committee maintained its target range for the federal funds rate at 0 to ¼ percent at this meeting. With the economic recovery now reasonably well established, [resource utilization increasing,] and inflation stable, the Committee anticipates that [some | a gradual] reduction in the exceptionally large degree of monetary accommodation will be appropriate before long. The timing [and pace] of this reduction will depend on the evolution of economic and financial conditions, [but at present it appears likely that the Committee could [begin to] implement some [a] reduction in accommodation in the [first | second] half of 20xx]. The reduction in accommodation will likely be accomplished in part through an increase in the interest rate paid on reserve balances held by depository institutions at the Federal Reserve; that increase will have the effect of putting upward pressure on the federal funds rate and other money market rates. In order to reinforce the upward pressure on short-term interest rates, the Federal Reserve may [likely will] also employ tools to drain reserves from the banking system, such as conducting reverse repurchase agreements and offering term deposits to depository institutions. [In order to ensure the readiness of such tools, the Federal Reserve plans to conduct some small-scale operations of the facilities over the next few months.] Although the Federal Reserve does not currently have plans to sell assets from its portfolio, it retains the option of asset sales as a means of further reducing monetary accommodation. 5. Policy firming is commencing In these circumstances, the Committee increased its target range for the federal funds rate to ¼ to ½ percent. In association with this increase, the Board of Governors increased the rate of interest on bank reserves to ½ percent and approved requests from Federal Reserve Banks to raise the discount rate to [1] percent, and the Committee directed the Federal Reserve Bank of New York to use reverse repurchase agreements to lower the quantity of excess reserves in the banking system, consistent with the higher target range for the federal funds rate. With the economic recovery now well established, resource utilization continuing to increase, and inflation stable, the Committee anticipates that it will [further] [gradually] reduce the still-exceptional degree of monetary accommodation in coming months. This reduction is likely to be accomplished by additional increases in the interest rate on bank reserves, by further use of reverse repurchase agreements (possibly with a broader set of counterparties than just primary dealers), and potentially by offering term deposits to depository institutions. Although the Federal Reserve does not currently have plans to sell assets from its portfolio, it retains the option of asset sales as a means of further reducing monetary accommodation. Page 6 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 198 of 201 DIRECTIVES SEPTEMBER FOMC MEETING 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 purchase agency debt, agency MBS, and longer-term Treasury securities during the intermeeting period with the aim of providing support to private credit markets and economic activity. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of private credit market conditions. The Desk is expected to complete purchases of about $300 billion of longer-term Treasury securities by the end of October. It is also expected to execute purchases of up to $200 billion in housing-related agency debt and about $1.25 trillion of agency MBS by the end of the first quarter of 2010. The Desk is expected to gradually slow the pace of these purchases as they near completion. The Committee anticipates that outright purchases of securities will cause the size of the Federal Reserve’s balance sheet to expand significantly in coming months. 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. Page 7 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 199 of 201 NOVEMBER FOMC MEETING — 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 purchase agency debt and agency MBS during the intermeeting period with the aim of providing support to private credit markets and economic activity. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of private credit market conditions. The Desk is expected to execute purchases of up to $200 billion in housing-related agency debt and about $1.5 trillion of agency MBS by the end of the second quarter of 2010. The Desk is expected to gradually slow the pace of these purchases as they near completion. The Committee anticipates that outright purchases of securities will cause the size of the Federal Reserve’s balance sheet to expand significantly in coming months. 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. Page 8 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 200 of 201 NOVEMBER FOMC MEETING — 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 purchase agency debt and agency MBS during the intermeeting period with the aim of providing support to private credit markets and economic activity. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of private credit market conditions. The Desk is expected to execute purchases of about $175 billion in housing-related agency debt and about $1.25 trillion of agency MBS by the end of the first quarter of 2010. The Desk is expected to gradually slow the pace of these purchases as they near completion. The Committee anticipates that outright purchases of securities will cause the size of the Federal Reserve’s balance sheet to expand significantly in coming months. 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. Page 9 of 10 November 3–4, 2009 Authorized for Public Release Class I FOMC - Restricted Controlled (FR) 201 of 201 NOVEMBER FOMC MEETING — 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 purchase agency debt and agency MBS during the intermeeting period with the aim of providing support to private credit markets and economic activity. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of private credit market conditions. The Desk is expected to execute purchases of about $160 billion in housing-related agency debt and about $1.1 trillion of agency MBS by the end of January 2010. The Desk is expected to gradually slow the pace of these purchases as they near completion. 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. Page 10 of 10
@FedFRASER