The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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 Confiden tial (F.R .) Class II – FOMC September 27, 2001 M ONETARY P OLICY A LTERNATIVES Recent D evelopm ents (1) The events in financial markets prior to the terrorist attacks might seem to read like ancient history by now: The Committee’s quarter-point reduction in the intended fede ral funds rate on August 2 1 was widely expected and barely sent a ripp le through m arkets. In the days th at followed, m ost market inte rest rates edged lo wer in light of generally downbeat news on the economy, including the release of the A ugust employme nt data in ear ly September, and broad equity indexes fell a ppreciably. Shortly after the terrorist attacks on September 11, the System announced that the discount window was available to meet liquidity needs and began to provide a massive amount of reserves through the window later that day and through open m arket operations on the next day. (See the box for a discussion of Desk operations and reserve mark ets in the afterma th of the attacks.) M arket participants evidently interpreted the interruptions to production an d spending ensuing from the terrorist attacks and the possible knock-on effects on asset prices and confidence as necessitating a considerable monetary policy response. In the event, on S eptember 17, the FOMC reduced the target federal funds rate ½ percentage point to 3 percent and said in the press release that unusually large volumes of liquidity would continue to be supplied until more normal financial market functioning was restored. In recent days, investors appear to be interpreting the sketchy information available on economic conditions since September 11 as pointing to a gloomier outlook for the economy, and federal funds futures qu otes seem to incorporate high od ds of another 50 basis point move at the October meeting and further easing in coming months that would bring the funds rate to the neighborhood of 2 to 2¼ percent by early next year (Chart 2). As has been the case for som e time, market participants apparently expect -2- that policy will reverse course fairly promptly, with about 1 percentage point of firming next y ear embed ded in ma rket interest rates, althou gh option p rices indicate that investors are un usually uncertain about this trajectory. Desk Operations and Reserve Markets in the Wake of the Sept. 11 Attacks The operations of some banks and federal funds brokers were seriously disrupted by the effects of the terrorist attacks. To help deal with these dislocations to markets and payment systems, the System provided an immense volume of reserves through open marke t operatio ns and d iscount w indow lending and also establishe d swap lines with several foreign central banks, one of which was partially drawn down (as shown in the table in Cha rt 1). A large add itional volum e of reserves w as created by ch eck float as air transportation was halted. Although other factors–notably a significant expansion in the foreign RP pool–absorbed a portion of these reserves, reserve balances swelled dramatically, p eaking at $11 4 billion on S eptember 1 3. The System suspended its fees and penalties for daylight and overnight overdrafts for a time to ease the challenges banks faced in managing reserve positions. To facilitate settlement in the Treasury securities market, the Desk temporarily eased its rules on securities lending, and dealers borrowed record amounts of securities from the System. Late in the week, discount window borrowing plunged, returning to more normal levels as a result of the enlarged volume of nonborrowed reserves and better functioning of the reserve market. As air transportation resumed, th e level of float dro pped bac k to more u sual levels by ea rly the followin g week. With th e fed fun ds mar ket functioning more norm ally, the Desk gradually cut back the provision of reserves through open market operations, and the level of reserve balances began to drop sharply. Nonetheless, the demand for and supply of reserve balances has remained som ewhat above usual levels. In the immediate aftermath of the attacks, banks mostly traded reserves at the 3½ percent target federal funds rate under an informal convention, with a substantial proportion of direct, rather than brokered, transactions. As more normal functioning resumed in the funds market, the federal funds rate fell below the FOM C’s formal targets for several days but fluctuated around the n ew target last week (as seen in the lower pa nel of Chart 1 ). Chart 2 Financial Market Indicators Expected Federal Funds Rates Estimated from Percent Financial Futures* Selected Treasury Yields* Percent 4.5 7.5 Daily 7.0 4.0 3.5 August 20, 2001 Two-year Ten-year 6.5 6.0 5.5 5.0 3.0 September 10, 2001 4.5 2.5 September 27, 2001 4.0 Ten-Year TIPS 3.5 2.0 3.0 2.5 Sep Nov 2001 Jan Mar May Jul 2002 Sep Nov May *Estimates from federal funds and eurodollar futures rates with an allowance for term premia and other adjustments. 15 Nov Jan Mar May 2001 Jul Sep Selected Risk Spreads* Percent 13 Daily 14 12 13 Sep 2000 *Nominal Treasury yields are estimated from a smoothed yield curve based on off-the-run securities. Selected Private Long-Term Yields Percent Jul 11 High Yield (left scale) 12 Basis Points 900 300 Daily 800 High Yield (left scale) 700 10 200 600 Ten-year BBB (right scale) 11 9 500 10 9 8 8 7 Ten-year Swap (right scale) May Jul Sep 2000 6 Nov Jan Mar May 2001 Jul 400 200 May Sep Jul Sep 2000 Nov Jan Mar May 2001 Jul Sep *Computed as the spread of the yield on the Merrill Lynch 175 index and an estimated ten-year BBB yield over the ten-year swap rate. Selected Equity Indexes Index(5/31/00) = 100 140 Daily Nominal Trade-Weighted Dollar Exchange Rates Index(5/31/00) = 100 110 Daily 108 120 Wilshire 5000 100 Ten-year BBB (right scale) 300 Major Currencies Index DJIA 106 100 Broad Index 104 80 102 Nasdaq 100 Other Important Trading Partners 60 98 40 May Jul Sep 2000 Nov Jan Mar May 2001 Jul Sep Note: Solid vertical line indicates August 21 FOMC meeting. May Jul Sep 2000 Nov Jan Mar May 2001 Jul Sep -3- (2) Rates on short- and intermediate-term Treasury securities fell about 60 to 110 basis points on balance over the intermeeting period, with the bulk of the decline occurring after September 11. The prices for these securities appear to have been boosted by actual and expected easing of the stance of monetary policy as well as safe-haven demands amid sharp fluctuations in equity prices and heightened global economic and po litical uncertainties. Yields on ten-year Treasury notes declined about 30 ba sis points, howe ver, and those o n thirty-year bon ds were flat, buo yed in part by investor concerns about the deteriorating outloo k for the federal budget surplus and the future sup ply of Treasur y debt. (3) Some of the infrastructure of the Treasury securities market was damaged or destroyed by the terrorist actions. Since then, market functioning has improved considerably but remains somewhat impaired. Virtually all brokers and dealers have resumed operations, although many are operating at backup locations and a number of firms have scaled back their market-making. Trading volumes for on-the-run issues have returned to historical ranges, and bid-asked spreads have narrowed. Nonetheless, such spreads remain slightly elevated, the amounts that can be transacted at those spreads are smaller than usual, and trading in off-the-run issues is quite limited. W hile clearance and settlement m echanisms ar e now gen erally performing norm ally, market participants report that a considerable volume of trades from September 11 have yet to be reconciled. Partly as a consequence, the incidence of failed securities trades remains relatively high. (4) Yields on investment-grade corporate bonds were generally about unchanged on balance over the intermeeting period, with the exception of those on relatively short-term or very highly r ated obligation s, such as federal agen cy debt, which dro pped consid erably. Junk bo nd yields, how ever, jumped more than 100 basis points over the period. Issuance of corporate bon ds ceased for a few days after -4- September 11, and investm ent-grade firms have accounted for virtually all the issuance since then. Trading activity in secondary markets for corpo rate bonds also has picked up in recent d ays but rema ins noticeably b elow norm al, particularly in the h igh-yield sector. The commercial paper m arket was significantly disrupted, leading to brief involuntary extensions of paper that would otherwise have matured, but issuance and activity have since rebounded; during the interruption, some firms reportedly drew on backup lines of credit at commercial banks. Discussions with several large banks indicate that most have not yet adjusted their terms and standards for business loans since September 11, but loan requests from firms in selected industries are being scrutinized more carefully; some of the banks contacted said that loan demand had weakened n otably . Equity markets w ere closed for four d ays following the attacks. After the markets reopened, broad equity price indexes tumbled, but in recent days they have recovered part of those losses on balance, bringing their cu mulative declines over the interm eeting period to 13 to 22 percen t. Intraday price ch anges in the eq uity market were quite large, and forward-looking measures of uncertainty inferred from options prices are unusually high. (5) The dollar’s average exchange value against other major currencies was about unchanged on balance over the intermeeting period, as modest dollar appreciation ea rly in the period was erased follo wing the attack s. The dollar var ied in a wide range against the yen, ending the period ¾ percent lower. Against the euro, the dollar slipped ½ percent on balance. In contrast, the dollar gained about 2 percent vis-à-vis the Canadian dollar, as investors reacted to signs that the slowdown in that country could be particularly abrupt. Central banks in most foreign industrial countries appreciably eased policy after the attacks, typically by 50 basis points, but long-term yields generally moved little on net. Share prices fell sharply on all major exchanges, in many cases by more than in this country. , -5- U.S. authorities did no t intervene for the ir own accounts. (6) The dollar’s exchange value against the currencies of our other important trading partners rose 2 percent during the intermeeting period, driven especially by the reaction in Latin America n markets to the more u ncertain globa l economic environment. The dollar gained 7¼ percent against the Brazilian real, and it rose 4¾ percent against the peso, as Mexican output declined and as investors worried about an intensification of the spillovers from the U.S. slowdown. Trading in emerging market debt was severely reduced for almost a week. Once trading recovered, emerging market bond spreads increased sharply, with those on Latin American sovereign debt widening by 50 to 200 basis points on net over the intermeeting period. (7) M2 growth sp iked to an estimated 19 percent annu al rate in September as the result of a record $165 billion surge in this aggregate for the week ending September 17. In that week, disruptions to the infrastructure o f financial markets led to a large involuntary accumulation of liquid deposits, which is expected to have largely run off in th e subsequen t week. A heig htened dem and for safe and liquid assets apparently e ncouraged further substitu tions from eq uity mutua l funds into deposits in M2. The flight to safety and the intermeeting policy easing spurred a resurgence in institution-only money market funds in September, further lifting M3 growth. D omestic non financial sector deb t expanded a t a 4¾ percen t pace in Au gust, about in line w ith its average gro wth since the fo urth quarter of last year. The gro wth of nonfedera l debt remain ed relatively low, as th e liquidation o f inventories likely Chart 3 Growth of Money and Selected Debt Aggregates Growth of M2 Growth of M3 Percent Percent 22 Annualized p 22 Annualized 20 20 p 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 p 18 2 0 0 p -2 Q1 2000 Q2 2001 J A S -4 Q1 2000 p - Preliminary. Q2 2001 J A -2 -4 S p - Preliminary. Growth of Nonfederal Debt Growth of Business Debt Sum of Selected Components* Percent 20 Annualized Percent 20 Annualized 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 p p p -2 -2 -4 -4 p Q1 2000 p - Preliminary. Q2 2001 J A S -6 Q1 2000 Q2 2001 J A S -6 p - Preliminary. *Bonds, commercial paper, and C&I loans. MARA:JW -6- allowed firms to run off short-term deb t. With the Treasury raising funds to finance tax rebates, federal debt rose at around a 7½ percent annual rate in August, somewhat faster than in the previous month. -8- Policy Alternatives (8) The inform ation that had accumula ted up to Se ptember 11 pointed to weaker economic activity than the staff had anticipated at the time o f the August FOM C meeting . Since then, in resp onse to the dislo cations to econ omic activity arising from the terrorist attacks, the further drop in equity prices, and an expected marking down of household and business confidence, the staff has revised down substantially its near -term outloo k and now shows a m ild downtu rn in real GD P in the Greenbook this year and only a modest uptick, on balance, in the first half of 2002. In light of this much weaker outlook, the staff has assumed that the federal funds rate will be reduced another 50 basis points this fall and then held steady at 2½ percent until it is raised gradually in the second half of 2003. Fiscal policy is assumed to provide a moderate im petus to growth over the next tw o years. Long-term interest rates are expected to hold at abo ut their curren t levels into early nex t year and then to drift down, the dollar to depreciate slightly, and equity prices to fall in the near term on earnings disappointments but to trend higher thereafter. With the growth of spending projected to fall short of that of potential output growth until mid 2002, the unemplo yment rate is exp ected to reach 6 ¼ percen t and then to d ecline just slightly toward the end of the forecast period. The resulting slack in resources, as well as the pass-through effects of lower oil prices, allows core PCE and CPI inflation to edge down to 1½ percent and 2¼ percent, respectively, in 2003. (9) If the Committee, like the staff, saw a high probability of protracted economic weakness ahead and, as a consequence, a substantial rise in the unemploym ent rate and a decline in core inflation, it presumably would ease policy further, as assumed in the Greenbook. The Comm ittee may see the staff forecast as embodying an appreciable enough downward revision to the prospects for spending and inflation pressures to justify reducing the intended federal funds rate 50 basis -9- points at this meeting. The equilibrium real federal funds rate, which summarizes the more persistent factors shaping spending and pressures on resources, is now estimated to be about a full percentage point lower than was thought at the time of the August meeting according to the measures based on the staff forecast as well as historical data (as discussed in the box). Even if the Committee did not think that the factors depressing spending were likely to be long lasting enough to lower the equilibrium real funds rate to that extent, those forces still might be seen as sufficiently persistent to warrant add itional policy easin g for a time. In ad dition, with household and busines s confidence p ossibly fragile, the C ommittee may consid er it important to be seen as moving aggressively with another half percentage point easing. Indeed, given the prevailing expectation among market participants of such an action, the Committee might be concerned that a smaller-sized ease could trigger an inappropr iate tightening o f other financial co nditions that co uld prove esp ecially problematic given the remain ing strains in the financial market infra structure. Moreover, the Committee may believe that, if aggregate demand proves to be surprisingly stron g, the cost of havin g eased policy a little to o much a t this time wo uld be relatively small given that inflation expectations are likely to remain well contained. (10) Investors have largely priced in a ½ percen tage point easin g at this meeting, along with a characterization of the balance o f risks as pointed toward econom ic weakness. A ccordingly, finan cial market price s likely would b e little changed if such expectations were realized. As always, the press release will be scrutinized for hints of the Comm ittee’s policy intention going forward, and any sense in the statement that there were higher-than-expected o dds of subsequent policy easing would trigger a downw ard ad justm ent of the exp ected p ath of the fun ds rate. In that circumstance, short- and intermediate-term interest rates would likely decline and equity prices increase. - 10 - Equilibrium Real Federal Fund s Rate Estimates One way to assess the stance of monetary policy is by comparing the actual real federal funds rate to estimates of its equilibrium level. The equilibrium real federal funds rate can be defined as the rate consistent with output being at its potential level once the effects o f transitory shock s–those with dynamics th at play out w ithin a few years–have dissipated. Chart 4 shows the range spanned by five estimates of the equilibrium federal funds rate calculated by Board staff, as well as the actual real federal funds rate and the real funds rates implied by the po licy alternatives discussed in the text. (The real funds rate is measured as the nominal federal funds rate less the lagged four-quarter change in core PC E prices as a proxy for expected inflatio n.) The recent behavior of these measures is shown in the table below the chart. The two estimates of the equilibrium rate based o n the historical data have declined over the intermeeting period because current-quarter activity now appears likely to be weaker than had previously been anticipated. The two measures of the equilibrium rate based on the historical data augmented by the staff projection have declined considerably further, reflecting the much weaker assessment of aggregate demand embodied in the staff forecast. By contrast, the estimate of the equilibrium federal funds rate based on indexed T reasury yields has changed little. The revisions to the measure s of the equilibriu m funds ra te, while substan tial in some cases, are fairly modest relative to the uncertainty associated with the estimates. In the case of the statistical filter method, standard errors of the estimates can be calculated. For 2001Q3, these standards errors imply that a 90percent confidence interval is roughly 2¼ percentage points on each side of the point estimate. Chart 4 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 q q q Current Rate 25 b.p. Easing 50 b.p. Easing 1 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 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 the third quarter of 2001. Percent Equilibrium Funds Rate Estimates ______ Method ____ 2000 ______ 2001H1 ______ 2001Q3 -Based on historical data* August Greenbook 3.1 3.3 2.8 3.1 2.8 3.1 -Based on historical data and the staff forecast August Greenbook 2.5 3.0 1.9 2.7 1.6 2.6 -Based on historical data** August Greenbook 3.9 4.1 2.8 3.1 1.8 2.5 -Based on historical data and the staff forecast August Greenbook 3.0 4.1 2.2 3.5 2.0 3.2 4.2 4.2 3.9 3.9 3.8 3.8 Statistical Filter FRB/US Model Treasury Inflation-Indexed Securities August Greenbook * Also employs the staff forecast for 2001Q3 and 2001Q4. ** Also employs the staff forecast for 2001Q3. Backward-looking moving averages, rather than centered moving averages, are used to estimate the persistent and transitory components of shocks to the model. - 11 (11) Easing policy 25 basis po ints at this meeting might be seen by the Committee as sufficient to induce an adequate recovery of economic growth over the time frame that such policy action would be felt on spending. The Committee might be especially inclined to adopt this o ption if it had reaso n to suspect tha t aggregate demand would snap back relatively promptly. For example, the Committee may read the current political climate as indicating that a considerable degree of fiscal stimulus is in the offing. Or the Comm ittee may be of the view that much of the adverse effects of the terrorist attacks on confidence is likely to be short lived. In any case, the outlook fo r fiscal policy, the state of co nfidence, and th e econom y more gen erally is quite uncertain at this time, and the Com mittee may prefer to await further developments before com mitting to a larger policy action. If events turn more adverse than expected in coming weeks, an additional easing step could be taken even before the nex t meeting. In co ntrast, should ag gregate dem and prove r esilient, this relatively modest ease would provide a b it more assurance of eventually bringing core inflation down. (12) The announcem ent of a 25 basis point easing would surp rise market participants, likely prompting a rise in interest rates, particularly at the short end of the yield curve, as well as a decline in stock prices. While the market fully expects an announcement that the risks remain tilted toward weakness, a more explicit suggestion of the Committee’s readiness to consider further steps, even in the intermeeting period, wou ld work to lim it the m arket reaction to this polic y choice. (13) Under the Greenbook forecast, the growth of domestic nonfinancial debt is expected to remain su bdued in th e months a head. The fed eral governm ent is forecast to res ume p aying down debt, albeit at a slower ra te than earlier this yea r. Househ old and bu siness debt is pro jected to contin ue to expand moderately in reflection of the weak outlook for consumer and investment spending. Much of the - 12 - bulge in emergency financing pro vided by banks imm ediately following the terrorist attack should b e repaid quick ly, as bond and paper mar kets have ma de considerab le progress in retu rning to m ore norm al operations. H owever, in light o f the likely increased perce ption of and lessened willingn ess to take on risk, inv estors will probably rem ain more ca utious in exten ding credit to lo wer-rated firm s, as reflected in widened risk spreads since the terrorist actions. Home mortgage borrowing should be fairly well maintained because of continuing low interest rates. (14) Under the assumption s of the Green book forecast, M 2 growth is projected to slow to a 5½ percent pace over the September-to-March period, owing to declines in household incomes, the waning of effects on money demand of the cumulative policy easings, and the running o ff of balances bloated by market disruptions. Over the four quarters of 2001, M2 is expected to post robust growth of around 10 percent, boosted not only by declines in the opportunity cost of holding money but also by the surge in mortgage refinancings, by unusual demands for U.S. currency, especially in Argentina, and by the reduced attractiveness of stock m arket investments relative to deposits and money funds. Partly because of these special factors, the velocity of M2 is expected to drop at a record annual rate of 6¾ percent this year, faster than w ould be pre dicted by the tra ditional relationsh ip of velocity to opportunity costs. - 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 p ress release issued after the m eeting (not par t of the directive). (1) Directive Wording The Federal Open Market Comm ittee seeks monetary and financial conditions th at will foster price stab ility and prom ote sustainable g rowth in output. To fu rther its long-run objectives, the Co mmittee in th e immed iate future seeks conditions in reserve markets consistent with MAINTAINING/ INCREASING /reducing the federal funds rate AT/to an average of around ___3 percent. (2) “Balance of Risks” Sentence Against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the Committee believes that the risks [ARE BALANCED WITH RESPECT TO PROSPECTS FOR BO TH GOALS] [ARE WEIGHTE D MAINLY TOWARD CONDITIONS THAT MAY GENERATE HEIGHTENED INFLAT ION PR ESSUR ES] [continue to be weighted m ainly toward conditions that may generate econo mic weakness] in the foreseeable future. M2 -----------------------------Ease Ease No 50 bps 25 bps Change ------------------------------ 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 8.8 7.4 19.1 -1.5 8.9 9.7 8.6 7.5 6.2 10.7 5.7 10.1 8.8 7.4 19.1 -1.2 9.2 9.1 7.1 5.7 4.7 10.7 5.7 10.1 8.8 7.4 19.1 -1.8 7.8 7.5 5.7 4.6 3.8 10.7 5.7 10.1 8.8 7.4 19.1 -1.5 8.5 8.5 7.0 6.0 5.0 19.1 14.0 12.9 6.4 -1.0 19.3 2.5 9.0 9.0 8.0 7.0 6.5 5.1 6.4 6.2 3.1 4.4 4.7 1.0 3.1 6.5 4.1 4.1 6.6 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 9.7 7.6 8.4 6.4 5.6 6.3 10.7 10.4 9.7 7.6 7.3 6.4 5.6 6.3 10.7 10.4 9.7 7.1 5.9 6.4 5.6 6.3 10.7 10.4 9.7 7.4 7.1 8.9 9.0 7.4 13.6 15.0 8.5 8.0 8.0 6.2 4.8 4.5 4.8 5.8 4.6 3.3 4.8 Growth Rate From Dec-2000 Dec-2000 Sep-2001 Aug-2001 Sep-2001 To Sep-2001 Dec-2001 Dec-2001 Mar-2002 Mar-2002 11.4 10.1 5.7 8.5 6.7 11.4 10.1 5.6 7.8 5.8 11.4 9.8 4.6 6.8 4.7 11.4 10.0 5.2 7.6 5.6 12.9 11.5 6.9 8.9 7.1 5.0 4.7 3.5 4.3 4.3 2000 Q4 2000 Q4 2000 Q4 Jun-2001 Sep-2001 Dec-2001 10.5 11.1 10.0 10.5 11.1 10.0 10.5 11.1 9.7 10.5 11.1 9.8 14.5 12.8 11.6 5.5 5.1 4.8 1999 Q4 2000 Q4 2000 Q4 2001 Q4 6.2 10.0 6.2 10.0 6.2 9.8 6.2 9.9 9.3 11.7 5.3 4.7 * This forecast is consistent with nominal GDP and interest rates in the Greenbook forecast. 145 127 27 68 126 --- Aug 29 Sep 5 Sep 12 Sep 19 Sep 26 2001 Sep 27 1,543 --- --- --1,543 ----- ----- ----- ----- ----- ----- 3,939 --- 211 3,537 228 638 1,076 7,476 12,238 4,822 7,263 24,522 2,000 --- Net 200.6 -993 --- 126 27 -1,475 145 127 2,215 251 116 288 74 380 90 58 718 2,899 -3,315 2,165 368 -3,229 292 2,046 2,706 -4,379 -9,651 -1,027 -4,969 -15,846 1,550 --- Change 82.6 --- --- --- ----- ----- --1,385 ----- 235 --- ----- 235 1,385 2,174 1,410 67 3,027 --1,605 1,672 6,611 4,770 2,000 2,039 8,809 6,297 11,895 <1 142.3 1,661 --- --- 851 --- 810 --- ----- 1,429 --- 2,024 --- 739 --- 4,193 810 2,685 1,428 1,883 4,480 925 2,983 5,792 8,592 7,152 3,111 3,319 14,482 12,901 19,731 1-5 55.6 935 --- --- ----- 557 379 ----- 10 --- 621 --- --125 756 935 657 --- --1,390 1,283 --- 1,283 2,047 2,362 1,281 930 5,871 2,294 4,303 5-10 Net Purchases 3 4. 5. 6. 7. 1,055 --- --- ----- --1,055 ----- 2,168 --- ----- 2,500 --- 4,668 1,055 2,287 --- --4,368 2,422 1,529 3,951 6,656 1,254 1,567 568 3,779 2,676 1,429 Redemptions (-) 359.1 2,261 --- --- 851 --- 1,367 44 --1,385 -728 --- 2,880 --- -1,761 940 1,330 2,795 4,469 4,257 2,950 5,441 82 3,554 6,586 14,167 14,803 5,806 7,398 31,215 23,699 43,928 Net Change Net change 0.0 --- --- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- --120 120 --- 10 --- 10 51 322 157 559.7 1,268 --- 126 878 -1,475 1,512 171 2,215 1,635 -613 288 2,954 380 -1,671 998 2,048 5,694 1,154 6,422 3,318 2,212 374 5,480 9,172 9,788 5,142 4,779 2,419 15,318 24,902 43,771 outright holdings 4 Agency Redemptions (-) total 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. 78.6 720 --- --- ----- --720 ----- ----- ----- --815 815 720 1,241 1,419 1,000 913 296 495 1,791 3,573 1,774 982 1,679 5,833 4,884 9,428 Over 10 Treasury Coupons -7.8 1,744 -6,294 -34,686 -3,379 33,559 -2,110 6,908 -3,828 4,348 599 -1,125 -1,947 2,625 6,997 -2,415 1,455 -668 2,035 -2,781 -1,078 669 777 666 1,884 639 -1,911 1,398 104 -2,027 -7,242 2,035 ShortTerm 6 18.0 2,000 -2,000 6,285 ---2,859 3 --- 2,000 2 --2,000 ----- ----- -1 3,421 1 -3 -11 0 -3,364 -6,327 -1,378 -2,186 -2,025 4,067 -9,709 7,133 463 8,347 LongTerm 7 Net RPs 5 MRA:SEF 10.2 3,744 -8,294 -28,401 -3,379 30,700 -2,107 6,908 -1,828 4,350 599 875 -1,947 2,625 6,997 -2,415 1,454 2,753 2,036 -2,783 -1,089 669 -2,587 -5,661 506 -1,547 -3,937 5,465 -9,605 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. $) Sep 27 Aug 21-Sep 27 550 2,215 251 Aug 15 Aug 22 Intermeeting Period 116 288 718 2,899 Jul Aug Aug 1 Aug 8 624 2,165 May Jun 74 380 579 308 Mar Apr Jul 18 Jul 25 520 2,683 2001 Jan Feb 90 58 3,782 3,097 2001 QI QII 2001 Jul 4 Jul 11 2,294 2,587 3,795 QIII QIV 8,676 2000 2000 QII 3,550 --- (-) 1998 1999 Redemptions Net Treasury Bills Purchases 2 September 27, 2001 Strictly Confidential Changes in System Holdings of Securities 1
@FedFRASER