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September 16–17, 2015 Authorized for Public Release Appendix 1: Materials used by Mr. Potter and Ms. Logan 194 of 240 September 16–17, 2015 Authorized for Public Release Class II FOMC – Restricted (FR) Material for Briefing on Financial Developments and Open Market Operations Simon Potter and Lorie Logan September 16, 2015 195 of 240 September 16–17, 2015 Authorized for Public Release 196 of 240 Class II FOMC - Restricted (FR) Exhibit 1 (1) Chinese Cunency Moves and Shanghai Composite Index RMB per USD - (2) Equity Index Performance Indexed to 0 1/0 1/ 15 Dollar-RMB, Onshore (LHS) Shanghai Composite Index (RHS) 6.45 180 170 160 150 140 130 120 110 100 90 80 I RMB ' . I Devaluation I 6.40 6.35 6.30 6.25 6.20 ,, v-' 6.1 5 01/01/15 03/01/ 15 05/01/1 5 07/01/ 15 09/01/15 125 120 115 110 105 100 95 90 85 80 75 01/01/15 (3) Change in One-Year Forward Treasury Rates Over Intermeeting Period ■ Real 25 20 15 10 5 0 -5 - 10 - 15 -20 -25 ly s&P 500 Index EmoStoxx 600 Index MSCI EM Equity Index RMB Devaluation 03/01/15 05/01/ 15 07/01/15 09/01/15 Source: Bloomberg Source: Bloomberg BPS - Indexed to 01/01/15 ' 2y 3y ■ Breakeven 4y 5y (4) China: Estimated FX Intervention ♦ Nominal 6y 7y Sy • Chinese official reserve data for August reported $100 billion monthly decline • Contacts believe intervention might have been significantly larger • Expectations are for continued heavy intervention in corning months • Chinese sales of Treasuries likely put significant upward pressme on yields 9y Fo1ward Rate Starting In Source: Federal Reserve Board of Governors (5) Treasury Nominal Swap Spreads - BPS 3-Year - (6) Brent Crude Oil Futures Price and Intraday Trading Range* 5-Year - Intraday Range (LHS) - Level (RHS) $/Bbl. 30 $/Bbl. 65 7 25 6 5 20 RMB - ~ 60 Devaluation 4 55 15 3 50 IO 2 5 40 0 07/01/15 0 01/01/1 5 45 1 Devaluation 03/01/15 Source: Bloomberg 05/01/15 07/01/15 09/01/1 5 07/22/ 15 *Front month futures contract. Source: Bloomberg 08/ 12/ 15 09/02/15 September 16–17, 2015 Authorized for Public Release 197 of 240 Class II FOMC - Restricted (FR) Exhibit 2 (8) Five-Year Inflation Swap Rates (7) FX Performance Over Intermeeting Period and Net Commodity Exports Percent 5 -ZK HUF T KRW £MXN TiiB - 10 NOK Average CAD i -·~ I 1.25 i RUB TRY MYR I -----------------------r--i 2.25 "OP !DR ZAR Euro Area ---• Euro Area Ten-Year Average 1.75 AUD CLP u.s. - - - - • U .S. Ten-Year Average 2.75 PLN PHP INR CNY 1 Depreciation against U .S. Dollar - f- 0.75 BRL - 15 -60 -40 -20 0 20 40 60 Net commodity exports as share of total goods exports(%) 80 0.25 01/01/15 Source: Unctad, Bloomberg 110/ 15/ 14 I 01 /1 5/ 15 2 .0 i i i i (10) Market-Implied Probability of Liftoff At or Before September Meeting* Equities Cun-encies Long Rates** 3 .0 1.0 07/01/15 Source: Barclays (9) Standardized Implied Volatility Indices* Standard Deviations 04/01/15 08/24/ 15 I Percent Assumptions for the EFFR: ::-...'-..'-..'-:'· Minimum and Maximum 25th and 75th Percentile Median 100 Greek referendum 80 0 .0 · I, · RMB .~..-]" D evaInation . ~:~. 60 -1.0 40 -2.0 -3.0 07/01/14 20 11/01/14 03/01/15 07/01/15 ..... June · FOMC 0 06/01/15 *Standardized I-month implied volatilities since June 1994. **Swaption with 10-yearunderlying. Source: Bloomberg, CBOE, Deutsche Bank, Barclays, Federal Reserve Bank of New Y ode Desk Calculations ~ i I 07/01/15 :::-::: FOMC i I 08/01/15 09/01/15 *Based on responses from the July Survey of Primary Dealers and June Survey of Market Participants' PDF-implied means for the EFFR immediately after liftoff. Probabilities are derived from October fed funds futures contract. Source: Bloomberg, Federal Reserve Bank of New York Desk Calculations (11) Expectations for Inflation Between One and Two Years After Liftoff* (12) Intermeeting Change in Key Components of Financial Conditions Percent 2 .30 2 .20 S&P500 2 .10 5-YearHigh Yield OAS a ment Period Percentile* -6.7% 4% +14 bps 31% +3.4% 2% + 11 bps 22% 4 bps 76% 2 .00 FRB Real Broad TW-Dollar 1.90 10-YearTIPS Yield 1.80 1.70 MBSOAS Jun Jul Sep Oct Dec Jan Mar Apr Jun Jul Sep '14 '14 '14 '14 '14 '15 '15 '15 '15 '15 '15 *Calculated as average of modal expectations for inflation 1-2 years ahead after liftoff. Source: Federal Reserve Bank of New York *Percentiles are measured over intermeeting period changes since January 2010 and computed so that lower percentiles represents a larger tightening in financial conditions. MBS OAS uses current coupon Fannie Mae 30-Year security. Source: Bloomberg, Barclays, Federal Reserve Board of Governors September 16–17, 2015 Authorized for Public Release 198 of 240 Class II FOMC - Restricted (FR) Exhibit 3 (13) Monthly Average Effective Federal Funds and Treasury Repo Rates* ..,.._EFFR ..,.._GCF ..,.._Triparty-Ex GCF BPS 25 (14) Primary Dealer Net Treasury Position $ Billions 80 70 20 60 15 50 40 IO 30 5 20 10 0 04/01/14 08/01/14 12/01/14 04/01/15 08/01/15 • Averages are taken over each month noted and exclude month ends. Source: Bloomberg, Federal Reserve Bank of New York 0 04/01/14 Billions 600 Pool Current* A ll Values in BPS 500 400 300 200 100 0 03/31/14 08/07/ 14 12/ 17/ 14 04/29/ 15 09/04/ 15 04/01/15 08/01/15 (16) Comparison of Cunent Interest Rate Levels to Median Estimates after Liftoff ■ ON RRP Outstanding ■ Tenn RRP Out.standing ■ Foreign RP 12/01/14 Source: Federal Reserve Bank of New York (FR2004), Haver (15) RRPs Outstanding and Foreign Repo Pool $ 08/01/14 Post-Liftofr!'* Desk Desk Smveys Outreach 3mUSD ilBOR 33 55 53 GCF TSYRepo 21 45 40 Tri-pa1ty Treasmy Repo 11 n/a 31 0/N Eurodollars 14 n/a 36 Effective fed funds 14 35 36 3m Treaswy bill 4 30 20 *Current rates are daily averages from 08/ 11/ 15to09/ 11/15. ** In Desk surveys, all primary dealers and 20 buy side firms expect target range of25 to 50 bps following liftoff; 7 buy side firms expect a target rate. In Desk outreach, contacts were asked to assume a 25 to 50 bps target range. Source: Federal Reserve Bank of New York, Bloomberg Source: Federal Reserve Bank of New York (18) Cumulative Change in Treasury Bill Supply Relative to Debt Ceiling Dates* (17) Average Probability Distribution of the Expected Effective Federal Funds Rate Level After Liftoff* Percent ■ April Sw-vey ■ September Swvey 2013 Actual 2015 Actual ---• 2015 Projected $ Billions 50 $ Billions 50 0 0 -50 - 100 - 150 -200 -50 -100 - 150 September FOMC -200 -250 -250 105 Below Range Bottom 8 Middle 9 Top 8 basis basis points basis points points Above Range *Average of all responses to the Survey of Primary Dealers and Survey of Market Participants. Question was first asked in April 20 15 survey. Source: Federal Reserve Bank of New York 84 63 42 21 0 Calendar Days Relative to Potential Debt Ceiling *11/30/ 15 and 10/ 16/ 13 used as debt ceiling dates. Source: U.S. Treasury, Federal Reserve Bank of New York Desk Calculations September 16–17, 2015 Authorized for Public Release 199 of 240 Class II FOMC - Restricted (FR) Exhibit 4 (Last) (20) September Term RRP Plans* (19) First Debt Ceiling-Impacted Bill* - 2011 - 2013 - 2015 Ifthe Committee decides not to /iflojf: BPS 50 45 40 35 30 25 20 15 10 Maturity Date Te1m Max Offered Ra. (BPS) ($ Billion) te Sep24 Oct0l 7 days 100 ONRRP + 3 Sep30 Oct02 2 days 150 ONRRP + 3 Ifthe Committee decides to /iflojf: 5 120 100 80 60 40 20 Maturity Date Te1m Sep24 Oct0l 7 days 100 ONRRP Sep30 Oct02 2 days 100 ONRRP 0 Calendar Days Before Potential Debt Ceiling Resolution *Details in blue already announced. *Bills shown mature(d) on 08/ 04/11, 10/24/13, 12/03/ 15. Source: Bloomberg (21) Average Probability Distribution of Expected Reinvestment Policy* Percent ■ Treasuries ■ Agency Debt and MBS (22) Expected Timing of End to Some or All Reinvestments Relative to Liftoff* 8 6 4 0 Reinvestments Ceased All at Once Reinvestments Phased Out Over Tune *Average of all responses to the Survey of Primary Dealers and Survey of Market Participants. Source: Federal Reserve Bank of New York - September 2015 Median Months 18 16 14 12 10 No Change to Reinvestments Annunt Max Offered ($ Billion) Ra.te (BPS) Operation Date 0 80 70 60 50 40 30 20 10 Annunt Operation Date 2 ♦ July 2015 Median •• t -• I 0 Treasuries *Dots scaled by percent of respondents. Source: Federal Reserve Bank of New York • Agency Debt and MBS September 16–17, 2015 Authorized for Public Release Appendix 2: Materials used by Ms. Klee and Mr. Erceg 200 of 240 September 16–17, 2015 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on the SOMA Reinvestment Policy Christopher J. Erceg and Elizabeth Klee September 16, 2015 201 of 240 September 16–17, 2015 Authorized for Public Release 202 of 240 Exhibit 1 Questions and Strategies Key Questio ns How much might the choice of reinvestment strategy matter for economic outcomes? How much might the choice of reinvestment strategy affect the path of the federal funds rate? Can reinvestment strategies linked to the federal funds rate improve economic outcomes w hen the ELB is binding? "Trigger" Strategies Full reinvestment of principal payments from Treasury securities and MBS would continue until the federal funds rate reaches the trigger (1 or 2 percent), then stop permanently. Three key features: o State dependent: end of reinvestment depends on economic outlook. o Links reinvestment to level of the policy rate. ° Conditionality is limited: triggers imply that reinvestment ends permanently once trigger is reached. 1 of 5 September 16–17, 2015 Authorized for Public Release 203 of 240 Exhibit 2 Implications of Alternative Reinvestment Strategies for the Modal Outlook A: SOMA Holdings B: Term Premium Effect Billions of Dollars Basis Points Monthly - - • ••• •-·- 0 Quarterly Baseline Reinvesbnent Federal Funds Rate = 1% Federal Funds Rate = 2% Constant Portfolio - - ·· • · - · - · -- - -- · - · - · - · -- · 5000 4000 - 50 3000 2000 , , . .. - 100 1000 2010 2015 2020 - - - - - - - - - - - - - - - - - - 150 2025 2015 2017 Source: H.4.1 Statistical Release and Staff Estimates. 2019 2021 2023 C: Real 10- year Treasury Rate D: Federal Funds Rate Percent Percent 4 Quarterly Quarterly 5 ... . - ·- ·- ·- ·- ·- 3 . 2025 Source: staff Estimates. - . - ---·- - -·-· 4 .............. 3 2 2 1 1 ------------------- ------------------0 2015 2017 2019 2021 2023 2015 2017 2025 Source: staff Estimates. 2019 2021 2023 0 2025 Source: staff Estimates. F: PCE Price Index E: Unemployment Rate Percent Percent Quarterly Four- quarter percent change 2.5 5.5 2.0 1.5 --·- -· 5.0 1.0 0.5 4.5 0.0 2015 2017 2019 2021 2023 2015 2017 2025 Source: staff Estimates. 2019 Source: staff Estimates. 2 of 5 2021 2023 2025 September 16–17, 2015 Authorized for Public Release 204 of 240 Exhibit 3 Federal Funds Rate Increases Needed to Offset Balance Sheet Stimulus A: Intercept Term of Inertial Taylor (1999) Rule Percent Quarterly - - • • • • •- •- B: Federal Funds Rate 2.4 Percent Quarterly 5 Baseline Reinvesbnent Federal Funds Rate = 1% Federal Funds Rate = 2% Constant Portfolio 2.2 ., 3 2.0 2 ;.• . .. ..... . 1.8 j• 1 ,. r 'i ,------- - - - - - ---- -- ---- 11 2015 2017 2019 2021 2023 1.6 0 2015 2017 2025 Source: staff Estimates. 2019 2021 2023 2025 Source: staff Estimates. D: PCE Price Index C : Unemployment Rate Percent Quarterly Percent 5.8 2.5 Four- quarter percent change 5.6 2.0 5.4 5.2 1.5 5.0 4.8 1.0 4.6 2015 2017 2019 2021 2023 2015 2017 2025 Source: staff Estimates. 2019 Source: staff Estimates. 3 of 5 2021 2023 2025 September 16–17, 2015 Authorized for Public Release 205 of 240 Exhibit 4 Implications of Alternative Reinvestment Strategies for an Adverse Scenario A: Federal Funds Rate B: Unemployment Rate Percent Quarterly Baseline Reinvestment Liftoff + 2 years • • • • Federal Funds Rate = 2% 5 Percent 4 , , ,. . 7 3 .., , . 8 Quarterly 6 , .. ..' \ \ 2 \ .' . ., ' 5 \ . ..' ' .., ' ' 1 4 0 2015 2017 2019 2021 2023 2015 2017 2025 Source: staff Estimates. 2019 2021 2023 2025 Source: staff Estimates. C: SOMA Holdings D: Term Premium Effect Billions of Dollars Basis Points 5500 onthly 0 Quarterly 5000 4500 - --- -,··············· - 50 4000 '\ 3500 - 100 '\ 3000 2500 - 150 2000 2015 2017 2019 2021 2023 2015 2017 2025 Source: H.4.1 Statistical Release and Staff Estimates. 2019 2021 2023 Source: staff Estimates. Key Implications of Trigger Strategies Balance sheet stimulus under trigger in adverse scenario comes from an expectations channel: o Reinvestment is tied to policy rate, which is expected to remain low . A "calendar- based" strategy that simply delayed reinvestment for a couple of years after liftoff would provide much less economic stimulus in adverse scenarios The trigger strategy only provides noticeable stimulus if the adverse shock occurs before the policy rate reaches the trigger. 4 of5 2025 September 16–17, 2015 Authorized for Public Release 206 of 240 Exhibit 5 Options for Statement Language on Reinvestment Policy Alternative C Options Continue Reinvestments 0 0 "until normalization of the level of the federal funds rate is well under w ay" - Qualitatively consistent with trigger strategies. - Might be interpreted as suggesting that reinvestment would not cease until the Committee had increased the federal funds rate more than a few times. - Public might conclude that reinvestment could continue for a long time if the economic outlook deteriorated. - Qualitative language would leave some ambiguity about how high the funds rate would have to rise to end reinvestment, though policymakers could clarify through communications. "at least during the early stages of normalization of the level of the federal funds rate" - Might be interpreted as indicating that the Committee intends to cease reinvestment after a few hikes in the policy rate. - Probably suggests that policymakers place a high priority on beginning to normalize the balance sheet fairly soon. - However "at least" would likely suggest that the Committee wanted to retain some option to continue reinvestment. 5 of 5 September 16–17, 2015 Authorized for Public Release Appendix 3: Materials used by Mr. Wilcox 207 of 240 September 16–17, 2015 Authorized for Public Release Class II FOMC – Restricted (FR) Material for The U.S. Outlook David W. Wilcox September 16, 2015 208 of 240 September 16–17, 2015 Authorized for Public Release 209 of 240 Class II FOMC - Restricted (FR) Forecast Summary Confidence Intervals Based on FRB/US Stochastic Simulations 2. Unemployment Rate 1. Real GDP Percent change, annual rate Sept. TB July TB 70% confidence interval Percent 10 Sept. TB July TB 70% confidence interval 8 8 6 7 4 6 2 --- 0 5 4 Natural Rate w ith EEB• -2 3 _ ..........................__.__.......__.______.....,..............._..._..._......... -4 2014 2015 2016 2017 9 2018 2014 2015 2016 2017 2018 2 •Effect of emergency unemployment compensation and state-federal extended benefit programs. 3. Output Gap Estimates 4. PCE Prices Percentage points FRB/ US Percent change, annual rate 6 Sept. TB July TB 70% confidence interval 4 2 6 5 4 3 0 2 -2 -4 0 -6 -1 -8 -2 ........................__..............__.._._____....._..............._........_..__...._........ -3 2007 2008 2009 2010 201 1 2012 2013 2014 2015 2014 2015 2016 2017 2018 Note: The shaded region is the 2-standard deviation band around the FRB/US output gap, reflecting only filtering uncertainty. 6. Unemployment Rate from Increased Financial Turbulence Scenario 5. PCE Prices Excluding Food and Energy Percent change, annual rate Sept. TB July TB 70% confidence interval Percent 5 Baseline (Sept. TB) Alternative 4 8 7 3 , 2 - - - ... --- 6 --- - - - - 4 0 ..._..._..__.L.....I -1 L -............................__..............__.__....____.........._...... 2014 2015 2016 2017 5 ........................__..............__.._._____....._..............._........_..__...._........ 3 2018 2014 2015 Note: Shock hits in 2015:04. Page 1 of 2 2016 2017 2018 September 16–17, 2015 Authorized for Public Release 210 of 240 Class II FOMC - Restricted (FR) Key Economic Indicators for the September, October, and Dece mber FOMC M eetings (Percent change at annual rate, except as noted) June July Aug. Sept. Oct. Nov. Dec. Total PCE price index 3-month change July Tea/book 2.4 2.5 1.1 0 .0 -0.7 -0 .5 0.1 2.2 2.5 1.1 0.0 -0.4 0.1 0.9 12-month change July Tea/book 0.3 0.3 0 .3 0.2 0.0 0.2 0.5 0.2 0.2 0.2 0.1 0.1 0.3 0.7 1.3 1.4 1.1 1.1 1.2 1.2 1.4 1.3 1.3 1.2 1.3 1.3 1.3 1.3 1.3 1.2 1.3 1.3 1.4 Core PCE price index 3-month change 1.7 1.4 July Tea/book 1.5 1.5 12-month change 1.3 1.2 July Tea/book 1.2 1.2 -----, -----r-----, 1.4 -----1 Unemployment rate (percent) July Tea/book 5.3 5.3 5.1 5.1 5.1 5.0 5.0 5.3 5.3 5.3 5.3 5.2 5.2 5.2 Payroll employment (change in 0OOs) July Tea/book 245 245 173 272 209 205 201 223 223 218 213 210 205 200 Gross Domestic Product July Tea/book 2nd Q2 est. 3rd Q2 est. 3.7 3.7 2.4 2.4 2nd Q3 est. 1.9 1.7 ill. ~ Equity prices -6.4 -5.1 Real br oad dollar 1.2 2.3 Memo: Revisions from July Tea/book* • Percent revisio n of level re lative t o July Tealbook pat h. ~ : Estimate first available at: ,___ _ __.I September meet ing ~ October meeting _ _ _ __.I December meet ing : Current project ion for September payroll employment change includes ant ici pat ed revision t o initially reported August figure. Page 2 of 2 September 16–17, 2015 Authorized for Public Release Appendix 4: Materials used by Mr. Wilcox 211 of 240 September 16–17, 2015 Authorized for Public Release Class II FOMC – Restricted (FR) Material for Consumer Price Index Update David W. Wilcox September 16, 2015 212 of 240 September 16–17, 2015 Authorized for Public Release 213 of 240 Class II FOMC - Restricted (FR) Recent Changes in Consumer Price Indexes (Percent) Monthly change June July Aug. Total CPI September TB 0.3 0.1 -0.1 -0.1 Food September TB 0.3 0.2 0.2 0.1 Energy September TB 1.7 0.1 -2.0 -2.5 Core CPI September TB 0.2 0.1 0.2 0.2 0.1 0.1 Change at AR Q3(f) Q4(f) 1.6 1.7 -0.8 -0.7 0.1 0.1 1.6 1.8 1.5 1.6 0.1 0.1 0.0 0.0 1.2 1.2 -0.5 -0.4 0.1 0.1 0.1 0.1 1.2 1.2 1.1 1.2 Memo : PCE price index estimates Total PCE price index September TB Core PCE price index September TB Notes: August 2015 CPI data released at 8:30 a m. on September 16, 2015. PCE price changes are staff estimates based on a translation of the August CPI and PPI data through August. f: Staff forecast. Page 1 of 1 September 16–17, 2015 Authorized for Public Release Appendix 5: Materials used by Mr. Kamin 214 of 240 September 16–17, 2015 Authorized for Public Release Class II FOMC- Restricted (FR) Materialfor The International Outlook Steven B. Kamin September 16, 2015 215 of 240 September 16–17, 2015 Authorized for Public Release 216 of 240 Exhibit 1 Class II FOMC - Restricted (FR) The International Outlook 1. Foreign GDP 2. Chinese GDP Percent change, annual rate Percent change, annual rate 6 - - July TB 5 Emerging market economies (EME) --------· Actual and current forecast - - July TB forecast Nowcast model estimate 14 12 4 10 3 8 2 , - - - - - -J 6 Advanced foreign economies (AFE) '--.L....-'-----'---'----'------'------'-'--.L....-'-----'---'----'------'------'---' 2014 2015 ____ _ _ 2016 0 2017 2011 2013 2015 Source: National Bureau of Statistics and staff estimates 3. Outlook for the Renminbi 2017 4. Oil Price Outlook Renminbi/Dollar i USD per barrel 5.9 July TB Monthly - - July TB 6.0 RMB appreciation 100 6.2 90 6.3 80 --- ---- 6.4 6.5 2014 2015 2016 2017 60 2014 2015 2016 2017 40 6. NX Contribution to U.S. Real GDP Growth 2013:Q1 = 100 - - July TB 70 50 2013 5. Real Dollar Indexes Percentage points. annual rate 130 1.5 - - July TB AFE ----- 1.0 125 0.5 120 Broad 11 5 t -0.5 Dollar appreciation 11 0 EME -1.0 --- 105 -1.5 100 2013 120 11 0 6.1 2013 130 2014 2015 2016 2017 95 Page 1 of 2 -2.0 ~-----'----'----'---'----'---'---'--.L....~-----'----'----'---'----'---'---'--~ 2013 2014 2015 2016 2017 -2.5 September 16–17, 2015 Authorized for Public Release 217 of 240 Exhibit 2 Class II FOMC - Restricted (FR) The International Outlook (2) 1. Three EME Recession Scenarios 1. China Crisis - Direct Effects on U.S. Economy (Green) • 7 percent fall in Chinese GDP below baseline • 10 percent devaluation of the renminbi against the dollar • No spillovers to other economies 2. EME Slowdow n (Blue) • Non-China EME GDP falls 3.5 percent below baseline • Real dollar rises by 10 percent against EM Es; 8 percent against all trading partners 3. EME Recession + fin anc ial spillovers to advanced economies (Red) • Non-China EME GDP falls 7 percent below baseline • Real dollar rises by 22 percent against EMEs; 17 percent against all trading partners • Advanced economy credit spreads rise, equity prices and sovereign yields fall 2. EME GDP 3. U.S. GDP 4-quarter percent change 4-quarter percent change 8 3.0 2.5 6 2.0 1.5 4 1.0 2 - 2015 2016 2017 0 0.5 ,___ ____,.___ __,~ - - - - - - - - - - I 0.0 Baseline China Crisis - Direct Effects -2 EME Slowdown EME Recession 2018 2019 2020 -4 -0.5 -1.0 ~~~~~~~~~~~~~~~~~ 2015 2016 2017 2018 2019 -1.5 2020 5. Federal Funds Rate 4. U.S. Headline Inflation 4-quarter percent change Percent 2.5 4 .0 3.5 3.0 2.5 2.0 1.5 2015 2016 2017 2018 2019 -0.5 1.0 -1.0 0.5 2020 2015 Page 2 of 2 2016 2017 2018 2019 2020 September 16–17, 2015 Authorized for Public Release Appendix 6: Materials used by Mr. Covas 218 of 240 September 16–17, 2015 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on the Summary of Economic Projections Francisco Covas September 16, 2015 219 of 240 September 16–17, 2015 Authorized for Public Release 220 of 240 Exhibit 1. Medians, cent ral tendencies, and ranges of economic projections, 2015- 18 and over the longer run Peroout Change in real G DP - Median of projections ■ Central tendency of projections I R,ange of projections 4 ~ ~ 3 ~ ~ I I ~ 2 Actual + 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Longer run Peroout Unemployment rate 10 9 8 7 ~ 2010 2011 2012 2013 2014 2015 ~ ~ ~ ~ 2016 2017 2018 Longer run 6 5 Percent PCE inflation ~ ~ ~ I ~ 2010 2011 2012 2013 2014 2015 2016 2017 2018 - 3 - 2 - 1 Longer run Percent Core PCE inflation ~ 2010 2011 2012 2013 2014 2015 ~ 2016 ~ 2017 ~ 2018 I - 3 - 2 - 1 Longer run N OTE: The data for the actual values of the variables are annual. The percent changes in real GDP and inflation are measured Q4/ Q4. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Page 1 of 5 September 16–17, 2015 Authorized for Public Release 221 of 240 Exhibit 2. Economic projections for 2015–18 and over the longer run (percent) Change in real GDP 2015 Median . . . . . . . . . . . . . . . . . . 2.1 June projection . . . . . . 1.9 Range . . . . . . . . . . . . . . . . . . . 1.9 – 2.5 June projection . . . . . . 1.7 – 2.3 Memo: Tealbook . . . . . . . . 2.0 June projection . . . . . . 1.6 2016 2017 2018 2.3 2.5 2.1 – 2.8 2.3 – 3.0 2.1 2.4 2.2 2.3 1.9 – 2.6 2.0 – 2.5 2.0 2.2 2.0 n.a. 1.6 – 2.4 n.a. 1.8 1.9 Longer run 2.0 2.0 1.8 – 2.7 1.8 – 2.5 1.9 1.9 Unemployment rate 2015 5.0 Median . . . . . . . . . . . . . . . . . . 5.3 June projection . . . . . . Range . . . . . . . . . . . . . . . . . . . 4.9 – 5.2 June projection . . . . . . 5.0 – 5.3 Memo: Tealbook . . . . . . . . 5.0 June projection . . . . . . 5.3 2016 2017 2018 4.8 5.1 4.5 – 5.0 4.6 – 5.2 4.9 5.2 4.8 5.0 4.5 – 5.0 4.8 – 5.5 4.8 5.2 4.8 n.a. 4.6 – 5.3 n.a. 4.7 5.1 Longer run 4.9 5.0 4.7 – 5.8 5.0 – 5.8 5.1 5.2 PCE infation 2015 0.4 Median . . . . . . . . . . . . . . . . . . 0.7 June projection . . . . . . Range . . . . . . . . . . . . . . . . . . . 0.3 – 1.0 June projection . . . . . . 0.6 – 1.0 Memo: Tealbook . . . . . . . . 0.3 June projection . . . . . . 0.6 2016 2017 2018 1.7 1.8 1.5 – 2.4 1.5 – 2.4 1.5 1.6 1.9 2.0 1.7 – 2.2 1.7 – 2.2 1.7 1.8 2.0 n.a. 1.8 – 2.1 n.a. 1.9 1.9 Longer run 2.0 2.0 2.0 2.0 2.0 2.0 Core PCE infation 2015 Median . . . . . . . . . . . . . . . . . . 1.4 June projection . . . . . . 1.3 Range . . . . . . . . . . . . . . . . . . . 1.2 – 1.7 June projection . . . . . . 1.2 – 1.6 Memo: Tealbook . . . . . . . . 1.3 June projection . . . . . . 1.3 2016 2017 2018 1.7 1.8 1.5 – 2.4 1.5 – 2.4 1.4 1.6 1.9 2.0 1.7 – 2.2 1.7 – 2.2 1.7 1.8 2.0 n.a. 1.8 – 2.1 n.a. 1.9 1.9 * The percent changes in real GDP and infation are measured Q4/Q4. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Page 2 of 5 September 16–17, 2015 Authorized for Public Release 222 of 240 Exhibit 3. FOMC part icipants ' assessments of the timing of and economic conditions at liftoff Appropriate timing of liftoff □ September projections June projections r - 11 - 10 9 • 8 7 7 6 6 5 - 4 3 2 2015Q3 2015Q2 2015Q4 2 2016Ql 2016Q2 CorePCE inflation September Economic Projections . ... ... . ... .. .. . 2016Q4 2017Ql 2017Q2 .. .. ... . j~ ..j ..j ..j .. .. .. .. .. .. .. .. ... .. .. .. .. ... .. ... . .. .. .. ~···············i·O ···········!···············~ 1.s ~ 2017Q3 Core PCE inflation June Economic Projections :···············:···············:···············: 2.0 . ... ... . 2016Q3 :···············:···············:···············: 2.0 ... .. .. .. l.. ... .. .. .. v ... .. .. .. . ... ... .. l.. l.. ... ... .. .. .. ... .. .. .. .. .. . .. .. ... .. .. .. . . . ~···············~···············:···············!""" 1.5 ~ H···············t··············t··············b LO 4.5 5.0 5.5 Unemployment rate 6.0 H···············t··············t··············b 1.o 4.5 5.0 5.5 Unemployment rate 6.0 Year and Quarter of Firming 6 2015Q2 ◊ 2015Q3 Q 2015Q4 'Y 2016Ql ■ 2016Q2 "\l 2016Q4 b,,, 2017Q3 N OTE: In the upp er panel, the height of each bar denotes the number of FOMC participants who judge that, under appropriate monetary p olicy, the first increase in the target range for the federal funds rate from its current range of 0 to 1/4 percent will occur in the s pecified calendar year and quarter. In the lower panels, p ercent change in core PCE is measured Q4/ Q4 and when the projections of two or more participants are identical, larger markers, which represent one participant each, are used so that each projection can be seen. Page 3 of 5 September 16–17, 2015 Authorized for Public Release 223 of 240 Exhibit 4. Overview of FOMC participants' assessments of appropr iate monetary policy J\}rceot Appropriate pace of policy firming Target federal funds rate or midpoint of target range at year-end - -♦- ~~J:'~t~ !;;~i~~i;~don·n,.y1o~·tim)' rui,; ·····················································i··························- i 5 -··········································································································•··························4.5 I ~ i~i i~_;_i.;_~. ~ .: l -············1··························~ ······················· ~· ~· ··················· ~ ·~ ·~ ·········;············~·············- 3 -♦♦♦♦♦♦♦♦♦♦♦♦ · · · · · · · · · · · · · · · · · · · · · · · · ·· ························· · · ·····································~··························- -······································· · · ······················· ·· ·····································:··························• • • 2.5 2 I -··········· ······················ ·· ·· ······························································;··························-······································..· ..································································~··························- 1.5 -··································· ·· ·· ·· ·····························································;··························• • • I =::::::~:~:~:~:~:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::= • • • • • • • I - · · · · · · · · · · · · · · ·························································································,··························• • I -··········································································································,··························-··········································································································l··························2015 2016 2017 2018 0.5 + 0 0.5 Longer run Appropriate pace of policy firming Target federal funds rate or midpoint of target range at year-end - .? .l~ .P.~~~<:<:~i~.~ ..................................................................................... : ......................... · - 5 ♦ Median prescription based on Taylor (1999) rule 1 -··········································································································;··························- 4.5 -········································································································•1••··········0 ············1 ......................... = l -··········· 4 ······································)········ OCilOGOO·········- ·························· ·······································• ·········00000··········- 3.5 ·································································•:••········ 000···········o F $ ! ::,: ·······················(X)0································································;··························- -·········································································································•1••························1.5 0000 I -·······································o·································································,··························ooooo O I -··········································································································•··························ooooo I =:::::::::§.::::::::::::::::::::::?.::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::= 00 2015 I 2016 2017 2018 0.5 0 Longer run NOTE: In the two panels above, each circle indicates the value (rounded to the nearest 1/s percentage point) of an individual participant's judgment of the m id p oint of the appropr iate target range for the federal funds rate or the appropr iate target level for the federa l funds rate at the end of the specified calendar year or over the longer run. The red d iamonds for each year represent the median of the federal funds rate prescriptions that were derived by taking each pa rt icipant's p rojections for the unemployment gap, core PCE inflation and longer-run nominal feder al funds rate for that year and inserting them into the non-inertial Taylor (1999) rule . The whiskers represent the central tendency of the prescriptions of the non-intertial Taylor (1999) rule using participants' projections. Page 4 of 5 September 16–17, 2015 Authorized for Public Release 224 of 240 Exhibit 5. Uncertain ty and ris ks in economic p rojections Number of participants Numbe:r of part-icipa.ots Risks to GDP growth Uncertainty about GDP growth □ September projections June projections □ - 18 - 16 September projections June projections ... - - 14 - 12 - 10 - 8 - 6 - ~---~ -. Lower Broadly similar 4 2 - 14 - I - 12 ~~~--~J:~1~l~ i -~~·1 Weighted to downside Higher - 18 - 16 Broadly balanced Weighted to upside Number of participants Numbe:rof part-icipa.uts Risks to the unemployment rate Uncertainty about the unemployment rate - 18 16 14 12 rI - 10 I L--Lower Broadly similar - 8 6 4 2 [ ~1 j Weighted to downside Higher Broadly balanced - I I~- - Number of participants - 18 - 16 18 16 14 12 ... - - 10 - 8 - 6 - 6 - 4 2 i Weighted to downside Higher Broadly balanced 1] 4 2 Weighted to upside Number of participants Risks to core PCE inflation Uncertainty about core PCE inflation - 18 16 14 12 - 10 - - I Broadly similar - 12 - 10 - I - 8 ~- - -- -- ~ - IBroadly similar - 14 Numbe:r of part-icipa.uts Lower I~ Risks to PCE inflation Uncertainty about PCE inflation -• ~ 18 16 14 12 10 8 6 4 2 Weighted to upside Numbe:rof part-icipa.uts Lower - Higher 8 6 4 2 -- - I I ~~ - r1 1~. Weighted to downside Page 5 of 5 Broadly balanced - - , 1] Weighted to upside 18 16 14 12 10 8 6 4 2 September 16–17, 2015 Authorized for Public Release Appendix 7: Materials used by Mr. Laubach 225 of 240 September 16–17, 2015 Authorized for Public Release Class I FOMC – Restricted Controlled (FR) Material for Briefing on Monetary Policy Alternatives Thomas Laubach September 16–17, 2015 226 of 240 September 16–17, 2015 Authorized for Public Release 227 of 240 Exhibit 1 : Alternatives A, B, and C Alternative B • Economic activity expanding at a moderate pace o apart from net exports, expansion has been more broadly based • Labor market improved further and indicators "show" diminution of slack o quite close to meeting criterion for liftoff • Inflation developments less favorable o further effects of price declines for energy o market-based measured of inflation compensation lower • Acknowledges developments abroad o may restrain economic activity, but not enough to tilt risks to the downside o further downward pressure on inflation likely in the near term • Not yet reasonably confident that inflation will move back to 2 percent over the medium term Alternative A • More downbeat description of recent inflation developments • Risks to the outlook tilted somewhat to the downside • If no information indicating inflation returning to target, add accommodation to achieve that goal within one to two years Alternative C • Economic background for beginning to normalize the funds rate • Economic growth moderate so far this year • Labor market criterion for liftoff met o further improvement in the labor market "confirms" that resource slack has diminished o labor market conditions "approaching" mandated levels • Reasonably confident that inflation will move back to 2 percent over the medium term o transitory factors will dissipate o labor market will continue to improve o inflation expectations will remain stable Page 1 of 14 September 16–17, 2015 Authorized for Public Release 228 of 240 Exhibit 2: Monetary Policy Expectations Option-implied Probability of Liftoff Percent September 2015 FOMC or ear1ier March 2016 FOMC or later 100 80 July FOMC 60 Distribution of Expected Timing of First Rate Increase from the Primary Dealer Survey Perc~t 50 ----,I .. I I I I I I I .. 1 ~ ~ 40 .. 1 20 I ~o Sept Survey July Survey I ,' , I ~ ■ - - 1.-----, "! 11 - - - <= Sept I I ,! - 30 - 20 t~--·f'' ___ II Dec. Note: Implied by federal funds futures. Assumes that investors expect the federal funds rate to trade around 37 .5 basis points after liftoff. Source: CME Group. >=Mar. 2016 Note: Average across dealers of their individual probabili ies attached to the first tightening occuring at a particular meeting. Source: FRBNY Primary Dealer Survey from September 8 , 2015. Probability of Tightening the Day Before the FOMC Meeting Distributions of Market Beliefs on the Timing of Liftoff from September Surveys Percent - Oct. i·---·, I I - 40 Jan. 67 June 2004 100 June 2015 3 September 2015 31 0 100 Sept Survey Average Percent February 1994 10 80 . •• ••. • .. 60 • ' • t • •z . 40 t •• i 20 0 Note: Implied by federal funds futures. Assumes that investors expect the federal funds rate to trade around 37 .5 basis points after liftoff. June 2015 numbers are as of June 15, 201 5 and September numbers are as of September 15, 2015. Source: CME Group and staff calcula ions. Potential Financial Market Response • Market reaction is hard to predict • Overall response w ill be shaped by the Committee's communications Sept Oct. o Technical factors and market dynamics Jan. >=Mar. Note: Based on all responses from the Survey of Primary Dealers and Survey of Market Participants. Dots scaled by percent of respondents. Source: FRBNY Primary Dealer and Market Participant Survey from September 8, 201 5. Federal Funds Rate Projections • Sept PD Survey Median • Sept SEP Median Projection • June SEP Median Projection o Policy path remains fairly shallow, has shifted down a bit o Continues to indicate normalization likely to begin later this year • Risk Factors o Low level of term premiums Dec. •• • • • •• • Percent ••• • • 3.0 2.5 • 2.0 1.5 1.0 0.5 0.0 2016 2017 2018 Source: Bloomberg, FRBNY Primary Dealer Survey, September and June 201 5 SEP, and staff calculations. Page 2 of 14 3.5 September 16–17, 2015 Authorized for Public Release 229 of 240 JULY 2015 FOMC STATEMENT 1. Information received since the Federal Open Market Committee met in June indicates that economic activity has been expanding moderately in recent months. Growth in household spending has been moderate and the housing sector has shown additional improvement; however, business fixed investment and net exports stayed soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely. 3. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. 4. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. 5. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. Page 3 of 14 September 16–17, 2015 Authorized for Public Release 230 of 240 ALTERNATIVE A FOR SEPTEMBER 2015 1. Information received since the Federal Open Market Committee met in June July indicates suggests that economic activity has been is expanding at a moderately moderate pace in recent months. Growth in Household spending and business fixed investment has have been increasing moderately, and the housing sector has shown additional improvement improved further; however, business fixed investment and net exports stayed have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, A range of labor market indicators suggests shows that underutilization of labor resources has diminished since early this year, but gains in labor compensation have remained subdued. Both overall and core inflation have continued to run below the Committee’s longer-run inflation objective, partly reflecting earlier declines in energy prices and decreasing in prices of non-energy imports. Market-based measures of inflation compensation remain low are near multiyear lows; survey-based measures of longer-term inflation expectations have remained stable. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. However, in light of economic and financial developments abroad, the Committee continues to sees the risks to the outlook for economic activity and the labor market as nearly balanced tilted somewhat to the downside. Inflation is anticipated to remain near its recent very low level in the near term, but as recent movements in oil prices and exchange rates impose some additional restraint on inflation. The Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate, The Committee but it continues to monitor inflation developments closely. 3. With inflation, core inflation, and gains in labor compensation all subdued, and with market-based measures of inflation compensation very low, the Committee today reaffirmed its view judges that the current 0 to ¼ percent target range for the federal funds rate remains appropriate to support continued progress toward maximum employment and price stability. In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. If incoming information does not soon indicate that inflation is beginning to move back toward 2 percent, the Committee is prepared to use all tools necessary to return inflation to 2 percent within one to two years. Page 4 of 14 September 16–17, 2015 Authorized for Public Release 231 of 240 4. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. 5. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. Page 5 of 14 September 16–17, 2015 Authorized for Public Release 232 of 240 ALTERNATIVE B FOR SEPTEMBER 2015 1. Information received since the Federal Open Market Committee met in June July indicates suggests that economic activity has been is expanding at a moderately moderate pace in recent months. Growth in Household spending and business fixed investment has have been increasing moderately, and the housing sector has shown additional improvement improved further; however, business fixed investment and net exports stayed have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing in prices of nonenergy imports. Market-based measures of inflation compensation remain low moved lower; survey-based measures of longer-term inflation expectations have remained stable. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. Nonetheless, the Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely. 3. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. 4. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. 5. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and Page 6 of 14 September 16–17, 2015 Authorized for Public Release 233 of 240 inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. Page 7 of 14 September 16–17, 2015 Authorized for Public Release 234 of 240 ALTERNATIVE C FOR SEPTEMBER 2015 1. Information received since the Federal Open Market Committee met in June July indicates that economic activity has been expanding at a moderately moderate pace, on average, in recent months this year. Growth in Household spending and business fixed investment has have been increasing moderately, and the housing sector has shown additional improvement improved further; however, business fixed investment and net exports stayed have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, A range of recent labor market indicators, including solid job gains and lower unemployment, suggests shows further improvement in the labor market and confirms that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing in prices of non-energy imports. Although market-based measures of inflation compensation remain low moved lower, survey-based measures of longer-term inflation expectations have remained stable. 2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate adjustments in the stance of monetary policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward approaching levels the Committee judges consistent with its dual mandate. The Committee is monitoring developments abroad but continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, reflecting declines in energy prices and in prices of non-energy imports, but the transitory effects on inflation of these declines will dissipate. With the labor market continuing to improve, and with longer-term inflation expectations remaining stable, the Committee expects is reasonably confident that inflation to will rise gradually toward to 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely. 3. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate. In light of the considerable further improvement in labor market conditions this year, and the Committee’s expectation that inflation will rise, over the medium term, to its 2 percent objective, the Committee decided to raise the target range for the federal funds rate to ¼ to ½ percent. Even with this adjustment, the stance of policy remains highly accommodative. 4. In determining how long to maintain this the timing and size of future adjustments to the target range, the Committee will assess progress both realized and expected toward economic conditions relative to its objectives of maximum employment and 2 percent inflation [ , and will take a balanced approach to pursuing those objectives ]. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Page 8 of 14 September 16–17, 2015 Authorized for Public Release 235 of 240 Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run; however, the actual path of the target for the federal funds rate will depend on the incoming data. 5. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction; the Committee anticipates doing so [ until normalization of the level of the federal funds rate is well under way | at least during the early stages of normalization of the level of the federal funds rate ]. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. 6. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer run goals of maximum employment and inflation of 2 percent. Page 9 of 14 September 16–17, 2015 Authorized for Public Release 236 of 240 JULY 2015 DIRECTIVE Consistent with its statutory mandate, the Federal Open Market Committee seeks monetary and financial conditions that will foster maximum employment and price stability. In particular, 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 undertake open market operations as necessary to maintain such conditions. The Committee directs the Desk to maintain its policy of rolling over maturing Treasury securities into new issues and its policy of reinvesting principal payments on all agency debt and agency mortgagebacked securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions. 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 14 September 16–17, 2015 Authorized for Public Release 237 of 240 DIRECTIVE FOR SEPTEMBER 2015 ALTERNATIVE A AND ALTERNATIVE B Consistent with its statutory mandate, the Federal Open Market Committee seeks monetary and financial conditions that will foster maximum employment and price stability. In particular, 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 undertake open market operations as necessary to maintain such conditions. The Committee directs the Desk to maintain its policy of rolling over maturing Treasury securities into new issues and its policy of reinvesting principal payments on all agency debt and agency mortgagebacked securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions. 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 11 of 14 September 16–17, 2015 Authorized for Public Release 238 of 240 IMPLEMENTATION NOTE AND DESK STATEMENT FOR SEPTEMBER 2015 ALTERNATIVE C The draft directive for Alternative C, which raises the target range, is included in an implementation note, shown below, that would be released with the FOMC’s policy statement to communicate actions the Federal Reserve was taking to implement the Committee’s decision.1 This implementation note is the same as the note that was shown in the July Tealbook for Alternative C, except that the dates have been changed from July to September. (Struck-out text indicates language deleted from the current directive; bold, red, underlined text indicates language added to the current directive.) A Desk statement regarding overnight reverse repurchase agreements, also shown below, would be released simultaneously with the implementation note. 1 The July Tealbook was the first to include a draft implementation note for Alternative C, and that Tealbook included some explanatory information regarding the evolution of the text of the note since it was first proposed to the Committee in June (see the memo sent to the Committee on June 10, 2015, titled “Proposal for Communicating Details Regarding the Implementation of Monetary Policy at Liftoff and After” by Deborah Leonard and Gretchen Weinbach). Page 12 of 14 September 16–17, 2015 Authorized for Public Release 239 of 240 Implementation Note for September 2015 Alternative C Release Date: September 17, 2015 Actions to Implement Monetary Policy The Federal Reserve has taken the following actions to implement the monetary policy stance adopted and announced by the Federal Open Market Committee on September 17, 2015: The Board of Governors of the Federal Reserve System voted [ unanimously ] to raise the interest rate paid on required and excess reserve balances to [ 0.50 ] percent, effective September 18, 2015. As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive: “Consistent with its statutory mandate, the Federal Open Market Committee seeks monetary and financial conditions that will foster maximum employment and price stability. In particular, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to ¼ percent. Effective September 18, 2015, the Committee directs the Desk to undertake open market operations as necessary to maintain such conditions the federal funds rate in a target range of [ ¼ to ½ ] percent, including: (1) overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of [ 0.25 ] percent and in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations; and (2) term reverse repurchase operations as authorized in the resolution on term RRP operations approved by the Committee at its March 17-18, 2015, meeting. “The Committee directs the Desk to maintain its policy of continue rolling over maturing Treasury securities into new issues and its policy of to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgagebacked securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions.” 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. More information regarding open market operations may be found on the Federal Reserve Bank of New York’s website2. The Board of Governors of the Federal Reserve System voted [ unanimously ] to approve a [ ¼ ] percentage point increase in the primary credit rate to [ 1.00 ] percent, effective September 18, 2015. In taking this action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of…. This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve’s operational tools and approach used to implement monetary policy. 2 When this document is released to the public, the blue text will be a link to the relevant page on the FRBNY website. Page 13 of 14 September 16–17, 2015 Authorized for Public Release 240 of 240 Desk Statement for September 2015 Alternative C Release Date: September 17, 2015 Statement Regarding Overnight Reverse Repurchase Agreements During its meeting on September 16-17, 2015, the Federal Open Market Committee (FOMC) authorized and directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York, effective September 18, 2015, to undertake open market operations as necessary to maintain the federal funds rate in a target range of ¼ to ½ percent, including overnight reverse repurchase operations (ON RRPs) at an offering rate of 0.25 percent and in amounts limited only by the value of Treasury securities held outright in the System Open Market Account (SOMA) that are available for such operations. To determine the value of Treasury securities available for such operations, several factors need to be taken into account, as not all Treasury securities held outright in the SOMA will be available for use in ON RRP operations. First, some of the Treasury securities held outright in the SOMA are needed to conduct reverse repurchase agreements with foreign official and international accounts.1 Second, some Treasury securities are needed to support the securities lending operations conducted by the Desk. Additionally, buffers are needed to provide for possible changes in demand for these activities and for possible changes in the market value of the SOMA’s holdings of Treasury securities. After estimating the effects of these factors, the Desk anticipates that around $2 trillion of Treasury securities will be available for ON RRP operations to fulfill the FOMC’s domestic policy directive.2 In the highly unlikely event that the value of bids received in an ON RRP operation exceeds the amount of available collateral, the Desk will allocate awards using a single-price auction based on the “stop-out” rate at which the overall size limit is reached, with all bids below this rate awarded in full at the stop-out rate and all bids at this rate awarded on a pro rata basis at the stop-out rate. The operations will be open to all eligible RRP counterparties, will settle same-day, and will have an overnight tenor unless a longer term is warranted to accommodate weekend, holiday, and similar trading conventions. Each day, individual counterparties are permitted to submit one proposition in a size not to exceed $30 billion and at a rate not to exceed the specified offering rate. The operations will take place from 12:45 p.m. to 1:15 p.m. (Eastern Time). Any changes to these terms will be announced with at least one business day’s prior notice on the New York Fed’s website. The results of these operations will be posted on the New York Fed’s website. The outstanding amount of RRPs are reported on the Federal Reserve’s H.4.1 statistical release as a factor absorbing reserves in Table 1 and as a liability item in Tables 5 and 6. The outstanding amount of RRPs with foreign official and international accounts is reported as a factor absorbing reserves in Table 1 in the Federal Reserve’s H.4.1 statistical release and as a liability item in Tables 5 and 6 of that release. 2 This amount will be reduced by any term RRP operations outstanding at the time of each ON RRP operation. 1 Page 14 of 14
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