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Presentation Materials (PDF) Pages 86 to 108 of the Transcript Appendix 1: Materials used by Mr. Dudley Class II FOMC - Restricted FR Page 1 Top panel (1) Title: Investment Bank Equity Prices Series: Equity Prices for Morgan Stanley, Goldman Sachs, Lehman Brothers, and Merrill Lynch Horizon: August 1, 2007 - September 15, 2008 Description: Equity prices for Morgan Stanley, Goldman Sachs, Lehman Brothers, and Merrill Lynch decline. Lehman Brothers underperforms compared to the other major investment banks. Source: Bloomberg Middle panel (2) Title: Investment Bank CDS Spreads Series: Credit Default Swap Spreads for Morgan Stanley, Goldman Sachs, Lehman Brothers, and Merrill Lynch Horizon: August 1, 2007 - September 15, 2008 Description: Credit default swap spreads for Morgan Stanley, Goldman Sachs, Lehman Brothers, and Merrill Lynch widen. Source: Markit Page 2 Top panel (3) Title: Large Commercial Bank Equity Prices Series: Equity Prices for JPMorgan Chase, Citibank, and Bank of America Horizon: August 1, 2007 - September 15, 2008 Description: Equity prices for JPMorgan Chase, Citibank, and Bank of America remain relatively unchanged since the August FOMC meeting. Source: Bloomberg Middle panel (4) Title: Large Commercial Bank CDS Spreads Series: Credit Default Swap Spreads for JPMorgan Chase, Citigroup, and Bank of America Horizon: August 1, 2007 - September 15, 2008 Description: Credit default swap spreads for JPMorgan Chase, Citigroup, and Bank of America widen. Source: Markit Page 3 Top panel (5) Title: Regional Bank Equity Prices Series: Equity Prices for Washington Mutual, Wachovia, and Wells Fargo Horizon: August 1, 2007 - September 15, 2008 Description: Washington Mutual's equity price declines during the intermeeting period, while Wells Fargo's equity price increases and Wachovia's equity price remains relatively unchanged. Source: Bloomberg Middle panel (6) Title: Regional Bank CDS Spreads Series: Credit Default Swap Spreads for Washington Mutual, Wachovia, and Wells Fargo Horizon: August 1, 2007 - September 15, 2008 Description: The credit default swap spread for Washington Mutual widened substantially during the intermeeting period. Source: Markit Page 4 Top panel (7) Title: Agency Debt Spreads Series: Fannie Mae 5- and 10-Year Debt Spreads and Freddie Mac 5- and 10-Year Debt Spreads Horizon: March 1, 2008 - September 15, 2008 Description: Agency debt spreads decline during the intermeeting period. Source: Bloomberg Middle panel (8) Title: Mortgage Option Adjusted Spreads Series: Mortgage Option Adjusted Spreads to Treasury yield, Agency Debt, and Interest Rate Swap Horizon: January 1, 2007 - September 12, 2008 Description: Mortgage option adjusted spreads decline during the intermeeting period. Source: Lehman Brothers Page 5 Top panel (9) Title: Fannie Mae and Freddie Mac Equity Prices Series: Equity Prices for Fannie Mae and Freddie Mac Horizon: August 1, 2007 - September 15, 2008 Description: Equity prices for Fannie Mae and Freddie Mac continue to decline. Source: Bloomberg Middle panel (10) Title: Fannie Mae and Freddie Mac CDS Spreads Series: Senior and Subordinated Credit Default Swap Spreads for Fannie Mae and Freddie Mac Horizon: August 1, 2007 - September 12, 2008 Description: Subordinated credit default swap spreads for Fannie Mae and Freddie Mac widened since the August FOMC meeting, while senior credit default swap spreads for Fannie Mae and Freddie Mac narrowed modestly during the intermeeting period. Source: Markit Page 6 Top panel (11) Changes in Financial Conditions 1989-2008 Changes Across Monetary Policy Easing Cycles* 2007-2008 Fed Funds Target Rate (bps) 2001-2002 1989-1992 -325 -525 -675 -254 -529 -694 30-Year Fixed Conforming Mortgage -76 -152 -301 Moody's Baa-Rated Corporate Index 52 -66 -199 3-Month LIBOR - OIS 75 -12 -2 30Y Fixed Mortgage - 5Y Treasury 85 64 76 Interest Rate Levels (bps) 3-Month LIBOR Interest Rate Swap Spreads (bps) Changes Across Monetary Policy Easing Cycles* 2007-2008 Moody's Baa Corporate Index - 10Y Treasury 2001-2002 1989-1992 154 60 71 -2 -8 -17 S&P 500 -14 -29 35 Case-Shiller 10-City Home Price Index -17 25 -3 58 -6 -30 Exchange Rate (%) Nominal Trade-Weighted Dollar Household Wealth (%) Lending Standards (%)** Change in Net % Tightening * Dates for the cycles are: 09/2007-present, 01/2001-11/2002, and 06/1989-09/1992. All data is end-of-month. Return to table ** Lending standards are the simple average of the net % of respondents to the Senior Loan Officer Survey reporting tightening standards on C&I, commercial real estate, mortgage, credit card, and other consumer loans. Changes for 1989-1994 are based on a start-date of July 1990, when the data is first available. Return to table Source: Federal Reserve Bank of New York Page 7 Top panel (12) Title: U.S. Equity Indices Series: S&P 500 Index, Nasdaq Index, and S&P 500 Financials Index Horizon: August 1, 2007 - September 15, 2008 Description: U.S. equity indices are relatively unchanged during the intermeeting period. Source: Bloomberg Middle panel (13) Title: Global Credit Default Swap Spreads Series: ITRAXX Crossover Series 7 and Baa CDS spread Horizon: August 1, 2007 - September 12, 2008 Description: ITRAXX Crossover and Baa CDS spread widen since the August FOMC meeting. Source: Bloomberg, Lehman Brothers Page 8 Top panel (14) Title: One-Month Libor-OIS Spreads Series: Spreads between One-Month Libor Rates and One-Month Overnight Index Swap Rates for U.S., U.K., and Euro Area Horizon: July 1, 2007 - September 15, 2008 Description: The spread between the one-month Libor rate and the one-month overnight index swap rate widens in the U.S., while remaining relatively unchanged in the U.K. and the Euro area. Source: Bloomberg Middle panel (15) Title: Three-Month Libor-OIS Spreads Series: Spreads between Three-Month Libor Rate and Three-Month Overnight Index Swap Rates for U.S., U.K., and Euro Area Horizon: July 1, 2007 - September 15, 2008 Description: Spreads between three-month Libor rates and three-month overnight index swap rates widen in the U.S., U.K. and Euro area. Source: Bloomberg Page 9 Top panel (16) Title: TAF Auction Results Series: TAF Bid-to-Cover Ratio and Spread between the TAF Stop-Out Rate and Minimum Bid Rate Horizon: December 20, 2007 - September 11, 2008 Description: The spread between the TAF stop-out rate and the minimum bid rate is wider for the 84-day TAF than for the traditional 28-day TAF. Source: Federal Reserve Board Middle panel (17) Federal Reserve Term Securities Lending Facility Options Program Results August 27, 2008 - September 10, 2008 Auction Date Auction Settlement Term Collateral Amount Minimum Fee Rate Stop-out Rate Propositions Bid/Cover 8/27/2008 9/25/2008 7 Days Schedule 2 $50 b 0.01% 0.02% $51.0 b 2.04 9/10/2008 9/25/2008 7 Days Schedule 2 $50 b 0.01% 0.03% $54.5 b 2.18 Source: Federal Reserve Bank of New York Page 10 Top panel (18) Title: Commodity Prices Series: GSCI Spot, Energy, Agriculture, and Industrial Metals Indices Horizon: January 1, 2008 - September 15, 2008 Description: Commodity prices decline since the August FOMC meeting. Source: Bloomberg Middle panel (19) Title: Dollar Appreciates Against Euro and Great British Pound Series: Yen-USD, Euro-USD, and Great British Pound-USD Horizon: January 1, 2008 - September 15, 2008 Description: The U.S. dollar appreciates against the Euro and Great British Pound, while depreciating against the Yen. Source: Bloomberg Bottom panel (20) Title: Dollar Strengthens Against Euro Despite Worsening Interest Rate Differentials Series: Euro-USD and Spread between the December 2009 3-Month Euribor Rate and the December 2009 3-Month Eurodollar Futures Rate Horizon: January 1, 2007 - September 15, 2008 Description: The dollar has appreciated against the Euro despite the widening spread between Euribor and Eurodollar futures. Source: Bloomberg Page 11 Top panel (21) Title: Correlation Between Weekly Changes in S&P GSCI Index and the Trade-Weighted Dollar Series: Six-Month Rolling Correlation of Percent Changes in the Weekly Average of Daily Closing Prices of the S&P GSCI Spot Index and the Trade-Weighted Dollar Spot Index, and the One-Year Moving Average of this Correlation Horizon: January 1, 1988 - September 15, 2008 Description: The correlation between the changes in the S&P GSCI Index and the trade-weighted dollar has been increasing since the beginning of 2002. Source: Bloomberg Middle panel (22) Title: Spread Between Nominal and Inflation Protected Treasury Yields Series: Five- and Ten-Year Spreads between Nominal and Inflation Protected Treasury Yields Horizon: January 1, 2007 - September 15, 2008 Description: The spreads between 5- and 10-year nominal and inflation-protected Treasury yields have been declining since the beginning of July 2008. Source: Bloomberg Bottom panel (23) Title: TIPS Implied Average Rate of Inflation: 5-10 Year Horizon Series: Federal Reserve Board's 5-10 Year Horizon TIPS Inflation Compensation and Barclays' 5-10 Year Horizon TIPS Inflation Compensation Horizon: January 1, 2007 - September 12, 2008 Description: TIPS inflation compensation over a 5-10 year horizon has declined since the August FOMC meeting as measured by both the Federal Reserve Board and Barclays. Source: Federal Reserve Board, Barclays Capital Page 12 Top panel (24) Title: Fed Funds Futures Curves Series: Fed funds futures curves as of 6/24/2008, 8/4/2008, and 9/15/2008 Horizon: June 24, 2008 - September 15, 2008 Description: The fed funds futures curve has shifted down and flattened since the August FOMC meeting. Source: Bloomberg Middle panel (25) Title: Eurodollar Futures Curves Series: Eurodollar futures curves as of 6/24/2008, 8/4/2008, and 9/15/2008 Horizon: June 24, 2008 - September 15, 2008 Description: The Eurodollar futures curve has shifted lower since the August FOMC meeting. Source: Bloomberg Page 13 Top panel (26) Title: Probabilities for Policy Rate Outcomes: September FOMC meeting Series: Probabilities for a 1.75, 2.00, 2.25, 2.50, or 2.75 percent target rate at the September FOMC meeting Horizon: May 1, 2008 - September 11, 2008 Description: At the time of the September 16th FOMC meeting, options on fed funds futures suggested a 2.00 percent target rate following the September 16th FOMC meeting was the most likely outcome. Source: Federal Reserve Bank of Cleveland Middle panel (27) Title: Probabilities for Policy Rate Outcomes: October FOMC meeting Series: Probabilities for a 1.75, 2.00, 2.25, 2.50, or 2.75 percent target rate at the October FOMC meeting Horizon: August 1, 2008 - September 11, 2008 Description: At the time of the September 16th FOMC meeting, options on fed funds futures suggested a 2.00 percent target rate following the October 28-29 FOMC meeting was the most likely outcome. Source: Federal Reserve Bank of Cleveland Page 14 Top panel (28) Title: Distribution of Expected Policy Target Rate Among Primary Dealers Prior to September 16 FOMC Meeting Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by quarter, and market rate for policy expectation by quarter as of 9/8/2008 Horizon: 2008:Q3 - 2009:Q4 Description: On average, primary dealer economists' policy rate expectations are similar to what is currently priced into Eurodollar futures. Source: Dealer Policy Survey Middle panel (29) Title: Distribution of Expected Policy Target Rate Among Primary Dealers Prior to August 5 FOMC Meeting Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by quarter, and market rate for policy expectation by quarter as of 7/28/2008 Horizon: 2008:Q3 - 2009:Q4 Description: On average, primary dealer economists expect lower policy rates than what is currently priced into Eurodollar futures. Source: Dealer Policy Survey APPENDIX: Reference Exhibits Page 15 Top panel (30) Title: Weekly Changes in Aggregate FIMA Holdings of Agency MBS Series: Weekly Changes in Aggregate FIMA Holdings of Agency MBS for Ginnie Mae, Freddie Mac, and Fannie Mae Horizon: September 5, 2007 - September 10, 2008 Description: Aggregate FIMA holdings of agency MBS for Freddie Mac and Fannie Mae have not grown since July 2008. Source: Federal Reserve Bank of New York Middle panel (31) Title: Global Equity Indices Series: DJ Euro Stoxx, Japan Topix, and MSCI Emerging Markets Horizon: August 1, 2007 - September 15, 2008 Description: Global equity indices decline modestly. Emerging markets underperform Japanese and Euro area equity markets during the intermeeting period. Source: Bloomberg Page 16 Top panel (32) Title: Forward Three-Month Libor-OIS Spreads Series: Forward spreads between three-month Libor rate and three-month overnight index swap rates in the U.S. for the 1-2 Year Horizon and the 2-3 Year Horizon Horizon: July 1, 2007 - September 12, 2008 Description: The spreads between the three-month Libor rate and the three-month overnight index swap rate over 1-2 year and 2-3 year horizons continue to rise. Source: Reuters Middle panel (33) Title: U.S. Dollar Net Long Positioning by Non-Commercial Accounts Increases* Series: U.S. Dollar Net Long Positioning by Non-Commercial Accounts Horizon: January 1, 2007 - September 1, 2008 Description: U.S. dollar net long positioning by non-commercial accounts increases. * Calculated as ($ amount of non-commercial long - short positioning) / ($ amount of total open interest). USD compared against the following currencies: EUR, JPY, GBP, CHF, CAD, MXN, AUD Return to text Source: Bloomberg, Chicago Mercantile Exchange Appendix 2: Materials used by Mr. Madigan Material for FOMC Briefing on Monetary Policy Alternatives and Trial Run Survey Results Brian Madigan September 16, 2008 Class I FOMC - Restricted Controlled (FR) Exhibit 1 Table 1: Alternative Language for the September 2008 FOMC Announcement September 15, 2008 [Note: In Appendix 2, Table 1, strong emphasis (bold) has been added to indicate underlined red text in the original document. Emphasis (italic) indicates underlined blue text in the original document.] August FOMC Policy Decision 1. The Federal Open Market Committee decided today to Alternative A The Federal Open Market Committee decided today to Alternative B The Federal Open Market Committee decided today to Alternative C The Federal Open Market Committee decided today to August FOMC Rationale Alternative A Alternative B Alternative C keep its target for the federal funds rate at 2 percent. lower its target for the federal keep its target for the federal funds rate 25 basis points to funds rate at 2 percent. 1¾ percent. raise its target for the federal funds rate 25 basis points to 2¼ percent. 2. Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth. Strains in financial markets have increased significantly and labor markets have weakened further. Overall economic growth appears to have slowed considerably, and tight credit conditions and the ongoing housing contraction are among the factors likely to weigh on growth over the next few quarters. Today's policy action, combined with those taken earlier, including the ongoing measures to foster market liquidity, should help to promote moderate economic growth over time. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. In addition, strains in financial markets have intensified and labor markets have weakened further. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. In addition, strains in financial markets have intensified and labor markets have weakened further. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Nonetheless, the accommodative stance of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth. 3. Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. Inflation has been high, but the Committee expects that the recent decline in energy and other commodity prices and increased slack in resource utilization will foster a moderation of inflation later this year and next year. Nevertheless, the inflation outlook remains highly uncertain. Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. Inflation has remained high, and some indicators of inflation expectations have been elevated. Although the Committee expects inflation to moderate later this year and next year, the possibility that inflation may fail to decline as anticipated is of significant concern. The downside risks to growth have intensified, but the upside risks to inflation remain a concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability. The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability. The Committee took this action to provide additional assurance that inflation will abate as desired. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability. 4. Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee Assessment will continue to monitor of Risk economic and financial developments and will act as needed to promote sustainable economic growth and price stability. Exhibit 2 Trial Run of Longer-Term Projections Top panel Survey Options 1. I prefer that the trial run encompass both Alternative 1 and Alternative 2. 2. I prefer that the trial run encompass only Alternative 1 (projections of long-run values, say 5 to 6 years ahead, absent further shocks). 3. I prefer that the trial run encompass only Alternative 2 (steady-state values). 4. I agree that a trial run should be conducted but have no preference regarding the two alternatives. 5. I propose that the following alternative approach to longer-term projections be considered (please explain) 6. Other (please explain). Bottom panel Survey Responses Option Number of participants #1 7 #2 5 #3 2 #4 1 #5 1 #6 1 Appendix 3: Materials used by Chairman Bernanke FEDERAL RESERVE press release [Seal of the Board of Governors of the Federal Reserve System] For immediate release September 16, 2008 The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent. Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth. Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial market developments closely and will act as needed to promote sustainable economic growth and price stability. Voting for the FOMC monetary policy action were: Return to top Home | Monetary policy | FOMC | FOMC transcripts Accessibility | Contact Us Last update: February 21, 2014
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