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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. Strictly C onfide ntial (F.R.) Class II – FOMC November 1, 2001 M ONETARY P OLICY A LTERNATIVES Recent D evelopm ents (1) Interest rates fell markedly over the intermeeting period.1, 2 Although the Comm ittee’s decision to redu ce the target level of th e federal funds ra te 50 basis points at the October meeting was largely foreseen by market participants, short- and intermediate-term market interest rates declined somewhat that afternoon, as investors apparently interpreted the announcement as raising the likelihood of additional policy easings. Economic data subsequently released had a weaker-thanexpected cast an d helped to b ring the net de clines in short-term interest rates to 30 to 40 basis points. Ju dging by futu res market pr ices, investors are con fident of at least a 25 basis point cu t in the funds rate target at the No vember m eeting and pu t roughly even odds o n a 50 basis po int move. Th ese quotes also su ggest that the fun ds rate is expected to d rop to 1-3/4 percent by early n ext year (chart). M arkets have price d in about 1 percentage point of monetary policy tightening over the subsequent twelve months, likely in the expectation that the econo my will be reb ounding r ather quickly then. (2) Yields on o ff-the-run Treasu ry coupon securities fell 30 to 45 b asis points over the intermeeting period, partly reflecting the weaker tone to the 1. Financial markets generally functioned normally over the intermeeting period (as discussed in the box on p age 2), and the few rema ining strains had little ne t effect on interest rates. 2. Ove r the interm eeting pe riod, the f ederal fu nds rate tra ded at an average of 2.47 percen t, close to its intended level of 2-1/2 percent, and intraday volatility in the funds rate was somewhat below normal, probably as the result of a temporary boost in required reserve balances attributa ble to the surge in deposits after the S eptember 1 1 attacks. The D esk purchased $3.7 billion of Treasury securities in outright operations over the period, including $0.7 billion in Treasury bills and $3.0 billion in coupon securities. The outstanding volume of long-term System R Ps increased $ 5 billion to $24 billion. Chart 1 Financial Market Indicators Expected Federal Funds Rates Estimated from Percent Financial Futures* Selected Treasury Yields* Percent 4.5 7.0 Daily 6.5 4.0 September 10, 2001 6.0 Ten-year 5.5 3.5 5.0 Two-year 4.5 3.0 4.0 October 1, 2001 2.5 Ten-Year TIPS 3.5 3.0 2.0 2.5 November 1, 2001 Nov Jan 2001 Mar May Jul 2002 Sep Nov Jan 2003 Sep *Estimates from federal funds and eurodollar futures rates with an allowance for term premia and other adjustments. 15 Mar 13 Daily Sep 2.0 Nov Percent 12 Percent 50 Weekly 12 High Yield (left scale) 11 13 11 40 Long-term Treasury Bond (left scale) 10 12 10 9 Ten-year BBB (right scale) 11 May Jul 2001 Capital Market Volatility* Percent 14 Jan *Nominal Treasury yields are estimated from a smoothed yield curve based on off-the-run securities. Selected Private Long-Term Yields Percent Nov 2000 8 10 30 9 20 7 9 Ten-year Swap (right scale) 6 8 S&P 500 (right scale) 8 10 5 7 Sep Nov 2000 Jan Mar May Jul 2001 Sep Sep Nov Nov 2000 Jan Mar May Jul 2001 Sep Nov *Implied volatilities calculated from options. Selected Equity Indexes Index(8/31/00) = 100 120 Daily Nominal Trade-Weighted Dollar Exchange Rates Index(8/31/00) = 100 110 Daily Wilshire 5000 DJIA 100 108 Broad Index Other Important Trading Partners 106 80 104 60 Nasdaq 102 Major Currencies Index 40 Sep Nov 2000 Jan Mar May Jul 2001 Sep Nov Note: Solid vertical line indicates October 2 FOMC meeting. Sep Nov 2000 Jan Mar May Jul 2001 100 Sep Nov 2 Market Functioning Brokers and dealers in mo ney and cap ital markets gen erally have return ed to more normal o perations since September 11, though some are still at contingency sites, and the hardest-hit firms have not regained their market shares. Bottlenecks in clearance and settlement systems have mo stly been resolved, and fails to deliver government securities are gradually diminishing from the elevated levels of recent weeks, owing in part to the reo pening of the on-the-run ten -year Treasury issu e in early October. The limits on the D esk’s securities lending program that had been relaxed after Sep tember 11 to enhance the a vailability of securities in sh ort supply were reinstituted on October 18. In the financing market, however, repo rates on on-the-run five-year and ten-year notes remain well below the rate on general collateral. Market liquidity also has been largely restored, though bid-asked spreads in some markets still tend to widen temporarily on large trades, perhaps reflecting heightened economic uncertainty more than the effects of any lingering problems with market infrastructure. economic outlook an d the associated marking dow n of policy expectations. In addition, the market had to digest considerable news on the volume and composition of Treasury issu ance going fo rward. As to the volume of issuance, ma rket participants apparently now expect a fiscal package imp lying a larger deterioration in the budget balance than previously anticipated. As to the com position of issuance, just yesterday, the Treasury a nnounced the suspension of future sales of thirty -year securities (both nominal and indexed to inflation) and hinted that it would scale back its buy-back program.3 Yields on private securities also moved sharply lower over the intermeeting period, particularly in the past two days (although it has been d ifficult to get firm readings of late given volatile market conditions). Despite the sense of a weaker n ear3. Yesterday’s announcement that the Treasury would no longer sell securities at the thirty-year maturity caught market participants unaw ares, and the yield on the on-therun thirty-year bond fell 40 basis points over the next two days, presumably reflecting an increased scarcity premium that w as especially acute as traders scrambled to cover short positions. 3 term outlook, investors seemed to beco me somewh at more confident about lon gerterm economic prospects and more willing to take on risk: Yield spreads on speculative-grade bonds fell substantially over the period, albeit to levels well above those in early September. Moreover, even without much in the way of encouraging news regard ing third-qua rter and prosp ective earnings, the W ilshire index rose a bout 5 percen t over the inte rmeeting period and th e Nasdaq re boun ded 18 percen t. (3) The dollar’s exchange value has risen modestly against other major currencies on balance since the October meeting. With data for foreign industrial economies also coming in on the weak side of expectations, market interest rates abroad declined about as m uch as in the United States. Policy interest rates were lowered 75 b asis points in C anada and 25 basis points in the United K ingdom . While the ECB did n ot adjust its policy stance during the intermeeting period, near-dated euribor futures appear to embed expectations of some easing by year-end and further moves in early 2002. Major equity indexes rose 4 to 8 percent over the intermeeting period in German y, the United Kingdom , and Japan, more than reversing declines recorded in September. Over the intermeeting period, U.S. monetary authorities did not intervene. (4) The dollar’s average exchange value against the currencies of ou r other important trading partners changed little on net over the intermeeting period. The Mexican p eso strengthen ed 2-1/2 perc ent against the d ollar, more tha n rolling back its declines in the aftermath of the September 11 terrorist attacks. The recent announcement that the Argentine government would seek to restructure its debt further intensified fea rs of a default, wide ning Arg entina’s EM BI+ spread by 600 basis points, on balance, over the intermeeting period. Reflecting some spillover from Argentina, the Brazilian real depreciated against the dollar, but only modestly as the authorities offset som e of that pressure by sales of dollar-in dexed debt. In general, 4 risk spreads for most other emerging market economies increased only slightly, on net, and share prices show ed mixed ch anges. (5) Despite the slowing of the economy and the disruptions in financial markets associated with the September 11 attacks, the debt of households and businesses has apparently continued to expan d at a moderate rate. The bond market absorbed a su bstantial amo unt of issuance by investmen t-grade firms in b oth September and October. Better-rated speculative-grade firms were able to tap the market in October after a near shu tdown of junk issuance in Sep tember. Net issuance of commercial paper also resum ed in October, after a fall-off the prior month, in part to repay backup lines at banks that had been drawn upon in S eptember. Banks report a further tightening of terms and standards on business loans, but the extent of the tightening did not exceed th at reported earlier in the year, and n o widesprea d cut-off of credit supply seems in train. Household mortgage borrowing has maintained a fairly brisk pace, aided by a further reduction in mortgage interest rates that has triggered ano ther wave of m ortgage refinan cings. Consu mer credit, in co ntrast, likely continued to expand sluggishly through September, restrained in part by the redirection o f some cash e xtracted from mortgage refin ancing to de bt con solidation. In part boosted by a sizable expansion of federal debt to finance the last round of tax rebate checks, the to tal debt of the no nfinancial sectors g rew at a 7 perce nt pace in September. (6) After a surge in September th at owed importantly to the tem porary buildup of deposits when secu rities trades failed to settle, the level of M2 declined slightly in October. Nevertheless, this monetary aggregate grew at an average rate of 12 percent over the past two m onths, reflecting the sharp drop in market interest rates and perhaps a fillip from the deposit of som e tax rebates. The velocity of M2 declined at a 7-1/4 percen t rate through the first three quar ters of the year, in respo nse mainly to the substantial reduction in opportunity costs associated with policy easings and 5 perhaps as well to some effects on money demand of mortgage refinancings, tax rebates, and the d isenchantm ent of househ old investors w ith the stock m arket. 6 MONEY AND CREDIT AGGREGATES (Seasonally adjusted annual percentage rates of growth) Jul 2001 Aug 2001 Sep 2001 Oct 2001 (p) M2 9.0 7.7 25.2 -0.9 M3 6.6 -0.3 22.6 9.5 Domestic nonfinancial debt Federal Nonfederal 3.3 5.1 2.9 5.5 7.6 5.1 6.9(p) 12.3(p) 5.8(p) n.a. n.a. n.a. Bank credit Adjusted1 -0.6 2.0 3.1 -0.6 17.2 13.6 -8.8 -10.6 11.6 11.3 15.4 15.1 47.3 44.6 -15.6 -12.3 Money and Credit Aggregates Memo: Monetary base Adjusted for sweeps 1. Adjusted to remove the effects of mark-to-market accounting rules (FIN 39 and FASB 115). p -- preliminary Chart 2 Growth of Money and Debt Aggregates Growth of M2 Growth of M3 Percent Percent 26 Annualized 26 Annualized 24 24 22 22 20 20 18 18 16 16 14 14 12 12 p 10 p Q1 Q2 2000 J A 2001 S O 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 Q1 Q2 2000 p - Preliminary. J A 2001 S -4 O p - Preliminary. Growth of Total Nonfinancial Debt Growth of Nonfederal Nonfinancial Debt Percent Percent 16 Annualized p 16 Annualized 14 14 12 12 10 10 8 8 p 6 6 4 4 2 2 0 0 -2 -2 -4 Q1 2000 p - Preliminary. Q2 J A 2001 S -4 O Q1 2000 Q2 J A 2001 S O p - Preliminary. MARA:HM 7 Policy Alternatives (7) The staff has read incoming econo mic information as suggesting a m ore pronoun ced near-term contraction th an projected in the last Greenb ook, owing to weaker capital spending and more aggressive inventory liquidation. The Greenbook forecast now assumes that the federal funds rate will be cut an additional 1/4 percentage point, to 2-1/4 percent, by year-end, and w ill remain at this level through 2002 before rising modestly. Yields on long-term Treasury securities and mortgages are expected to change little from their current levels, but those on investment-grade corporate bon ds are projected to decline somewh at as risk premiums unwind further. The dollar is assumed to hold near current levels on foreign exchange markets. After some near-term softening related to disappointing corporate earn ings, equity prices sh ould trend u p gradually, albe it on an appr eciably higher track than expected in the September Greenbook. The impetus from fiscal policy is now expected to provide a b igger boost to activity in 2002 and 2003. Against this policy and fin ancial backdro p, the staff expects real G DP to turn up noticeab ly in the spring. Although output growth begins to outpace that of its potential in the second half of n ext year, the typical lag in the response o f the unemp loyment rate explains why it continues to edge higher until mid 2002 and only slips off later in the forecast period. With the emergence of some labor market slack, core PCE inflation edges lower to 1-1/4 percent in 2003. (8) The Com mittee migh t choose to leav e the federal fund s rate unchanged if it were of the view that action at this meeting would be unlikely to affect the contours of the near-term economic downturn and that past monetary policy easing, probable n ew fiscal measu res, and the natu ral resiliency of private demand should provide enough stimu lus to underpin a solid econom ic recovery before long. In effect, the Committee would im plicitly be making the judgment that the g ap between the current real funds rate and its likely equilibrium value provides a sufficient amount 8 of impetus to economic activity over time (see chart and table). Indeed, the Committee may be especially reluctant to ease policy if it thinks the equilibrium real funds rate is likely to r ise in the future– as risk and equ ity premium s narrow, as is seemingly consistent with recent stock price gains, but also as the thrust of fiscal policy intensifies. With the budget package still working its way through the legislative process, considerable uncertainty surrounds the magnitude of the coming fiscal stimulus. Because this uncertainty should be resolved relatively promptly, the Comm ittee may prefer to keep policy un changed at th is meeting so a s to be able to calibrate better its policy action to the size and composition of wh at becomes law. If the Committee saw easing as a close call, with the federal funds rate as low as 2-1/2 percent, it might be argued that action should be deferred at this meeting so that the Committee would have more scope to respond to potential adverse shocks down the road. As described in the box on the zero bound to nominal interest rates on page 9, this tactic of “saving your ammun ition” would follow from the judgment that policy action in a narr ow wind ow follow ing an advers e shock would be mo re effective in bolstering activity over time than lowering rates more aggressively now so that any future shock falls on a stronger econom y. (9) Committee inaction at this meeting, even if combined with a statement reaffirming the assessment of predom inant downside risks, would surprise m arket participants. Considerable doubts would be created about whether the federal funds rate would go as low as 1-3/4 p ercent by the early months of next year as m arket participants cur rently expect. In co nsequence, oth er short-term in terest rates wou ld move noticeably higher. The likely upward movement of bond yields would be tempered by an immediate selloff of equities. To the extent that the outlook for spending an d income tu rned gloom ier, the exchange v alue of the dolla r might fail to appreciate despite the tighter-than-anticipated policy stance. Chart 3 Actual Real Federal Funds Rate and Range of Estimated Equilibrium Real Rates Percent 5 Quarterly Actual Real Funds Rate 4 Historical Average: 2.79 (1966Q1-2001Q3) 3 2 ● ● ● Current Rate 25 b.p. Easing 50 b.p. Easing 1 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Note: The shaded range represents the maximum and the minimum values each quarter of five estimates of the equilibrium real federal funds rate. Real federal funds rates employ four-quarter lagged core PCE inflation as a proxy for inflation expectations, with the staff projection used for 2001Q4. Percent Equilibrium Funds Rate Estimates ______ Method 2000 ____ 2001H1 ______ 2001Q3 ______ 2001Q4 ______ -Based on historical data* September Greenbook 2.7 3.1 2.4 2.8 2.3 2.8 2.3 --*** -Based on historical data and the staff forecast September Greenbook 2.5 2.5 1.9 1.9 1.8 1.6 1.7 1.5 -Based on historical data** September Greenbook 4.0 3.9 2.9 2.8 2.1 1.8 2.1 --*** -Based on historical data and the staff forecast September Greenbook 3.1 3.0 2.6 2.2 2.5 2.0 2.7 2.2 4.2 4.2 3.9 3.9 3.8 3.8 4.0 --*** Statistical Filter FRB/US Model Treasury Inflation-Indexed Securities September Greenbook * Also employs the staff forecast for 2001Q4 and 2002Q1. ** Also employs the staff forecast for 2001Q4. Backward-looking moving averages, rather than centered moving averages, are used to estimate the persistent and transitory components of shocks to the model. *** No values for 2001Q4 were available at the time of the September Greenbook. 9 The Ze ro Bound to the Nom inal Interest Rate With the overnight interest rate at 2-1/2 percent, the zero bound to the nominal interest rate may loom larger now in the Committee’s deliberations than at any time in the past four decades. The expe rience of Japan, in which the po licy rate has flirted with zero for five years and economic performance has been dismal, serves as a cautionary note for monetary policy makers. Of course, the short-term rate in the United States is still some distance away from zero, and intermediate- and longer-term rates here remain far above levels seen in Japan. Even if Committee members were to consider the zero bound as potentia lly relevan t, observ ers have put forw ard two quite diff erent ap proach es to avoiding a situation in which the economy is weak and further reductions in the nominal policy rate are not possible. 1. “Saving your am munition.” It may be viewed as quite possible that adverse shocks will emerge in the near term; in particular, global events could prompt further down drafts in h ouseho ld and b usiness co nfidenc e. The C omm ittee may want to be able to counter such adverse outcomes by easing, on the expectation that being seen as responsive to current events helps to bolster confidence. Action taken now limits the scope for such future monetary policy reaction to confidenceshaking eve nts. 2. Respondin g preemptively to skewed risks. If it were accep ted that policy op tions would be severely curtailed should the federal funds rate hit its zero floor and that the adverse consequences would be potentially quite large, the Committee might want to act now to reduce the possibility of that outcome. That is, the cost of easing too much currently ma y weigh less in th e Com mittee’s conside ration than the c ost of easing insufficiently now and winding up pinned to the zero bound at a later date. Staff analysis of the zero bound tends to support the latter view: Avoiding the zero boun d counsels m ore aggressive a ction in adva nce of zero in response to ad verse shocks than is the norm . More over, tim ely policy actions tak en soon er wou ld work to put the economy on a stronger footing when adverse shocks subsequently hit. But that determination would be less persuasive if the Committee’s view, as opposed to the mechanisms embodied in most econometric models, was that its action could have a greater effect on c onfidence, a nd hence the econom y, if taken on the heels of an ad verse shock or that monetary policy operations could still adequately stimulate the economy even if the no minal short-term interest rate were ze ro. 10 (10) The Committee may consider the staff forecast to be both probable and, under the circ umstances, a satisfac tory outcom e, and it may jud ge that an im mediate cut in the federal fu nds rate of 25 basis points is justified. With investors skittish and risks predom inately skewed to the down side, the Com mittee may b e reluctant to adopt a policy stance that is appreciably tighter than financial markets expect, which could further adversely affect hou sehold and b usiness sentim ent. The sma ll disappointment of market expectations implied by the adoption of this alternative might actually be viewed favorably by the Committee if it wished to slow the current pace of easing from its recent trajectory to help forestall financial markets from building in the expectation of considerably more easing than appropriate to achieve the Committee’s objectives. In effect, a modest disappointment now may pose less of a strain on markets than a more sizable one later on . (11) The Committee may judge that a 50 basis po int policy mov e is warranted on the grounds that the path of output is likely to fall short of that in the staff forecast–either because the contraction will be greater or the subsequent pickup less robust. The C ommittee might anticip ate the near-term outcome s for spending to be weaker than in the staff outlook if, for example, it suspected that the ongoing contraction of foreign economic activity and the stresses in financial markets of developing countries may portend greater-than-anticipated adverse feedbacks on U.S. production. The Co mmittee may also have d oubts that household and business spending w ill respond as vig orously to likely fiscal in itiatives as embed ded in the staff forecast. Even if the Committee viewed a 50 basis point move as a bit larger than necessary given its current assessment of the economic situation, the more substantial move might be favored if some weight were placed on the possibility of shocks that would be sufficiently adverse to make the zero bound to nominal interest rates a real constraint o n the effectiveness of mon etary p olicy at some poin t in the future . (12) As already noted, market participants are abou t evenly split between 11 expecting 1/ 4 percentage poin t and 1 /2 per centag e poin t of easing at th is meeting. Thus, some portio n of them would b e disap pointed by the cho ice of either ac tion. Working to temper any reaction, though, would be the sense that it is more likely that the timing of the easing they are expecting–in the neighborhood of 3/4 percentage points over the next half year–had chang ed, not the cumulative amou nt. Market participants universally expect that the balance of risks will remain tilted toward economic weakness, so not much would be read in its retention. A 25 basis point easing would prompt some backup in short- and intermediate-term rates and a decline in equity prices. A half point ease, in contrast, would pull short-term rates lower and, unless counte red by a clear sen se in the stateme nt that the Co mmittee h ad viewed its action as likely brin ging this easing p hase to a close, wo uld lead m arket participants to mark down the entire expected path of policy rates. The implied support to spending would likely bolster equity markets and offset to a considerab le extent any downward pressure on the exchange value of the do llar directly emanating from lower interest rates. (13) Given the funds rate assump tion in the staff forecast, M2 growth over the October-to-March interval is expected to fall appreciably, to about a 7-1/2 percent annual rate. The effects on opportunity costs of the previous easings, as well as that of the further 25 basis point cut in the staff pro jection , should abate over time. Together with the Greenbook’s forecast for nominal GDP, the implied rate of decline in M2 velo city lessens from a bout 10-1/2 percent in the cu rrent quarter to 5-1/2 percen t in the first qu arter. (14) Over the six months from September to March, the staff projects that growth of the total debt of domestic nonfinancial sectors will slip to a 4-1/2 percent rate, reflecting a slowin g in the expan sion of house hold debt. C onsumer credit borro wing is expected to be especially light, o wing to dep ressed spend ing on durab les. Even the g rowth of ho me mo rtgage debt, w hich has been exceptionally ro bust in 12 keeping with the decline in mortgage rates, is seen as tailing off a little as refinancings diminish an d housing a ctivity slows. Busin ess borrowin g is likely to stay arou nd its third-quarter pace, concentrated in the corporate bon d market. Neither banks, which have been tightening terms and stan dards on C& I loans, nor the commercial paper market, which also has become more selective, are anticipated to be major sources of funds. Federal d ebt should b e rising at only a 1/ 2 percent ann ual rate, as the bud get is foreseen to be in a modest deficit position on average o ver this six months. 13 Directive and Balance-of-Risks Language (15) Presented below for the members' consideration is draft wording for (1) the directive and (2) the “balance of risks” sentence to be included in the press release issued after the meeting (no t part of the directiv e). (1) Directive Wording The Federal Open Market Committee seeks monetary and financial conditio ns that will foster p rice stability and pr omote sustainable growth in output. To further its long-run objectives, the Comm ittee in the imm ediate future seeks conditions in reserve mark ets consistent with MAINTAININ G/INCRE ASING/reducing the federal funds rate AT/to an average of around ___2-1/2 percent. (2) “Balance of Risks” Sentence Against the background of its long-run goals of price stability and sustainable economic grow th and of the information currently available, the Committee believes that the risks [ARE BALANCED WITH RESPECT TO PROSPECTS FOR BOTH GOALS] [ARE WEIGHTED MAINLY TOWARD CONDITIONS THAT MAY GENERATE HE IGHTENED INFLATION PRESSU RES] [continue to be weigh ted mainly to ward con ditions that m ay generate eco nomic weakness] in the foreseeable future. Alternative Growth Rates for Key Monetary and Credit Aggregates M2 -----------------------------No Ease Ease Change 25 bps 50 bps ------------------------------ M2 M3 Debt -----------------------------Greenbook Forecast* ------------------------------ Monthly Growth Rates Apr-2001 May-2001 Jun-2001 Jul-2001 Aug-2001 Sep-2001 Oct-2001 Nov-2001 Dec-2001 Jan-2002 Feb-2002 Mar-2002 10.7 5.7 10.1 9.0 7.7 25.2 -0.9 8.0 7.6 6.9 6.4 5.7 10.7 5.7 10.1 9.0 7.7 25.2 -0.9 8.2 8.2 7.7 7.2 6.3 10.7 5.7 10.1 9.0 7.7 25.2 -0.9 8.4 8.8 8.5 7.9 6.9 10.7 5.7 10.1 9.0 7.7 25.2 -0.9 8.0 7.8 7.5 7.2 6.5 19.1 14.0 13.0 6.6 -0.3 22.6 9.5 9.3 9.5 8.0 8.0 8.0 5.2 6.7 6.1 3.3 5.5 6.9 4.1 3.6 4.7 3.5 4.0 6.1 Quarterly Averages 2000 Q2 2000 Q3 2000 Q4 2001 Q1 2001 Q2 2001 Q3 2001 Q4 2002 Q1 6.4 5.6 6.3 10.7 10.4 10.5 8.8 7.0 6.4 5.6 6.3 10.7 10.4 10.5 8.9 7.6 6.4 5.6 6.3 10.7 10.4 10.5 9.0 8.3 6.4 5.6 6.3 10.7 10.4 10.5 8.8 7.5 8.9 9.0 7.4 13.6 15.0 9.1 11.3 8.5 6.2 4.8 4.5 4.7 5.9 5.2 4.9 4.2 Growth Rate From Dec-2000 Dec-2000 Sep-2001 Oct-2001 To Oct-2001 Dec-2001 Mar-2002 Mar-2002 10.9 10.5 5.7 7.0 10.9 10.6 6.2 7.6 10.9 10.6 6.7 8.2 10.9 10.5 6.1 7.5 13.1 12.6 8.9 8.7 5.4 5.2 4.4 4.4 2000 Q4 2000 Q4 2001 Q4 Oct-2001 Dec-2001 Mar-2002 10.6 10.3 6.7 10.6 10.4 7.4 10.6 10.5 8.1 10.6 10.3 7.3 13.0 12.6 8.4 5.4 5.2 4.5 1999 Q4 2000 Q4 2000 Q4 2001 Q4 6.2 10.5 6.2 10.5 6.2 10.5 6.2 10.5 9.3 12.8 5.3 5.3 * This forecast is consistent with nominal GDP and interest rates in the Greenbook forecast. QIV 46 86 184 140 316 --- Oct 3 Oct 10 Oct 17 Oct 24 Oct 31 2001 Nov 1 --- --- --- ----- ----- 1,543 --- ----- ----- ----- --1,543 ----- 3,537 3,939 638 211 7,476 1,543 1,076 4,822 12,238 24,522 Net 201.4 728 --- 316 184 140 46 86 -1,475 126 127 27 251 145 288 2,215 2,899 -1,195 2,165 718 -3,229 -3,315 2,046 368 -4,379 2,422 2,706 -1,027 -9,651 -15,846 1,550 --- Change 84.6 1,411 --- --- 1,411 --- ----- ----- ----- 1,385 --- ----- 1,385 --- 1,410 235 3,027 2,174 1,605 67 6,611 1,619 1,672 2,000 4,770 8,809 6,297 11,895 <1 147.1 22 --- --- 22 --- ----- ----- --851 --810 ----- 810 851 1,428 4,193 4,480 2,685 2,983 1,883 8,592 5,854 5,792 3,111 7,152 14,482 12,901 19,731 1-5 50.2 422 --- --- 422 --- ----- ----- 379 --- --557 ----- 935 --- --756 1,390 657 ----- 2,047 1,691 1,283 1,281 2,362 5,871 2,294 4,303 5-10 Net Purchases 3 4. 5. 6. 7. --- --- --- ----- ----- ----- 1,055 --- ----- ----- 1,055 --- --4,668 4,368 2,287 1,529 --- 6,656 5,723 3,951 1,567 1,254 3,779 2,676 1,429 Redemptions (-) 361.7 3,039 --- 478 2,093 468 ----- ----- 44 851 1,385 1,367 ----- 2,795 851 4,257 1,330 5,441 4,469 3,554 2,950 14,167 4,976 6,586 5,806 14,803 31,215 23,699 43,928 Net Change 0.0 --- --- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- 120 --- ----- 120 --- 10 51 322 157 563.1 3,767 --- 794 2,276 608 46 86 -1,475 126 171 878 1,635 1,512 288 2,215 5,694 -344 6,422 2,048 2,212 1,154 5,480 3,318 9,788 7,398 9,172 4,779 5,142 15,318 24,902 43,771 outright holdings 4 total Agency Redemptions (-) Net change Federal Includes redemptions (-) of Treasury and agency securities. RPs outstanding less matched sale-purchases. Original maturity of 15 days or less. Original maturity of 16 to 90 days. 79.8 1,184 --- 478 238 468 ----- ----- 720 --- ----- ----- 720 --- 1,419 815 913 1,241 495 1,000 3,573 1,535 1,791 982 1,774 5,833 4,884 9,428 Over 10 Treasury Coupons -11.4 -8,549 -13,706 9,542 3,022 -9,738 6,549 -5,886 33,559 -34,686 6,908 -3,379 4,348 -2,110 -1,125 -3,828 -668 12,132 -2,781 1,455 669 2,035 666 -1,078 639 3,775 1,884 1,398 -1,911 -2,027 -7,242 2,035 ShortTerm 6 24.0 4,995 --- -3 -2,286 4,712 -997 3,143 -2,859 6,285 ----- 2 3 2,000 2,000 3,421 983 -3 -1 0 1 -6,327 -11 -2,186 2,587 -1,378 4,067 -2,025 7,133 463 8,347 LongTerm 7 Net RPs 5 MRA:SEF 12.6 -3,554 -13,706 9,539 737 -5,026 5,552 -2,743 30,700 -28,401 6,908 -3,379 4,350 -2,107 875 -1,828 2,753 13,115 -2,783 1,454 669 2,036 -5,661 -1,089 -1,547 6,362 506 5,465 -3,937 5,106 -6,779 10,382 Net Change Class II FOMC (Millions of dollars, not seasonally adjusted) 1. Change from end-of-period to end-of-period. 2. Outright purchases less outright sales (in market and with foreign accounts). 3. Outright purchases less outright sales (in market and with foreign accounts). Includes short-term notes acquired in exchange for maturing bills. Excludes maturity shifts and rollovers of maturing issues. Memo: LEVEL (bil. $) Nov 1 Oct 2-Nov 1 728 68 126 Sep 19 Sep 26 Intermeeting Period 127 27 Sep 5 Sep 12 2,899 348 Aug Sep 251 145 2,165 718 Jun Jul Aug 22 Aug 29 308 624 Apr May 288 2,215 2,683 579 2001 Feb Mar 2001 Aug 8 Aug 15 3,097 3,965 QII QIII 3,782 2,587 3,795 2000 QIII 2001 QI 8,676 2000 2,000 --- (-) 3,550 --- Redemptions Net Treasury Bills Purchases 2 1998 1999 November 1, 2001 Strictly Confidential Changes in System Holdings of Securities 1
@FedFRASER