Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, September 20-21, 2016 : Tealbook A

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Prefatory Note
The attached document represents the most complete and accurate version available
based on original files from the FOMC Secretariat at the Board of Governors of the
Federal Reserve System.
Please note that some material may have been redacted from this document if that
material was received on a confidential basis. Redacted material is indicated by
occasional gaps in the text or by gray boxes around non-text content. All redacted
passages are exempt from disclosure under applicable provisions of the Freedom of
Information Act.

Content last modified 01/14/2022.

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Class II FOMC – Restricted (FR)

Report to the FOMC
on Economic Conditions
and Monetary Policy

Book A
Economic and Financial Conditions:
Current Situation and Outlook
September 14, 2016

Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System

Authorized for Public Release

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Class II FOMC – Restricted (FR)

September 14, 2016

Domestic Economic Developments and Outlook
Since the July Tealbook, incoming information about economic activity has been
close to our expectations, on balance, and corroborates our earlier view that the pace of
economic growth is picking up in the second half of the year. The July and August
employment reports, taken together, indicated slightly more improvement in labor market
conditions than we had projected in July. On the spending side, real GDP growth in the
first half is estimated to have been weaker than earlier anticipated, but growth in private
domestic final purchases (PDFP)—which we view as a better indicator of the underlying
momentum in aggregate demand—has been solid and about in line with our previous
projection. The GDP shortfall reflected weaker inventory investment, which we expect
to be mostly unwound by the end of the year. All told, our forecast for real GDP growth
over the year as a whole is nearly unrevised at 1¾ percent.
Beyond this year, our projection for real GDP growth is a touch weaker than our
previous forecast, reflecting a slightly slower assumed pace of potential output growth.
We expect real GDP growth to increase to a 2½ percent pace in 2017 and then to edge
down to around 2 percent in 2018 and 1¾ percent in 2019—rates still sufficient to
generate some further tightening of resource utilization. At the end of 2018 and in 2019,
real GDP is forecast to be 1½ percent above our estimate of its potential.
Correspondingly, we expect the unemployment rate to fall to 4¼ percent, ¾ percentage
point below our estimate of its natural rate. These assessments are very close to our
expectations in the July Tealbook.
The inflation forecast is also essentially unrevised from the July Tealbook. We
continue to project that PCE prices will increase 1.2 percent in the second half of the
year, similar to the first half, as a step-down in core inflation is offset by an acceleration
in food and energy prices. Over the following couple of years, PCE inflation is projected
to move up, reaching 1.9 percent in 2019, as the effects of earlier energy and import price
declines fade and as resource utilization continues to tighten in an environment of
reasonably stable long-run inflation expectations.
We discuss our assessment of the risks to real economic activity and inflation in
the Risks and Uncertainty section.

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Comparing the Staff Projection with Other Forecasts
The staff’s projection for real GDP growth is about in line with the median
projection from the Survey of Professional Forecasters (SPF) and the Blue Chip
consensus forecast in 2016, and it is slightly stronger than that of the Blue Chip in
2017. (The SPF forecast is released quarterly and is about a month old; we await the
next release on November 14.) The staff’s forecast for the unemployment rate is
slightly above the others in 2016 and in line with the Blue Chip in 2017. The staff’s
projection for CPI inflation is slightly below the outside forecasters in 2016 and 2017.
The staff’s projections for total and core PCE price inflation are also somewhat
lower than the SPF in 2016 and 2017.

Comparison of Tealbook and Outside Forecasts
2016

2017

GDP (Q4/Q4 percent change)
September Tealbook
Blue Chip (09/10/16)
SPF median (08/12/16)

1.8
1.8
1.7

2.4
2.2
n.a.

Unemployment rate (Q4 level)
September Tealbook
Blue Chip (09/10/16)
SPF median (08/12/16)

4.9
4.8
4.7

4.5
4.5
n.a.

CPI inflation (Q4/Q4 percent change)
September Tealbook
Blue Chip (09/10/16)
SPF median (08/12/16)

1.5
1.8
1.6

2.2
2.3
2.3

PCE price inflation (Q4/Q4 percent change)
September Tealbook
1.2
SPF median (08/12/16)
1.4

1.6
1.9

Core PCE price inflation (Q4/Q4 percent change)
September Tealbook
1.6
SPF median (08/12/16)
1.8

1.6
1.9

Note: SPF is the Survey of Professional Forecasters, CPI is the consumer price
index, and PCE is personal consumption expenditures. Blue Chip does not provide
results for PCE price inflation. The Blue Chip consensus forecast includes input
from about 50 panelists, and the SPF about 40. Roughly 20 panelists contribute to
both surveys.
n.a. Not available.
Source: Blue Chip Economic Indicators; Federal Reserve Bank of Philadelphia.

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Tealbook Forecast Compared with Blue Chip
(Blue Chip survey released September 10, 2016)
Real GDP

Industrial Production
Percent change, annual rate

Blue Chip consensus
Staff forecast

2009
2011
2013
2015
2017
Note: The shaded area represents the area between the
Blue Chip top 10 and bottom 10 averages.

Percent change, annual rate

-4

-2

-8

-4

-12

-6

-16

-8

-20

-10

2009

Unemployment Rate

2011

2013

2015

2017

-24

Consumer Price Index
Percent

Percent change, annual rate

8
6

0
7
-2
6

2009

2011

2013

2015

2017

-4

-6

-8

2009

Treasury Bill Rate

2011

2013

2015

2017

-10

10-Year Treasury Yield
Percent

Percent

5.5
5.0

4.5
4.0

3.5
3.0

2.5
2.0

1.5
2009

2011

2013

2015

2017

-1

2009

2011

2013

2015

2017

Note: The yield is for on-the-run Treasury securities. Over
the forecast period, the staff’s projected yield is assumed
to be 15 basis points below the off-the-run yield.

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September 14, 2016

Revisions to the Staff Projection since the Previous SEP
The FOMC most recently published its Summary of Economic Projections, or SEP, following the
June FOMC meeting. The table below compares the staff’s current economic projection with the
one we presented in the June Tealbook.
Over the projection period through 2019, the cumulative growth of real GDP is slightly lower than
in the June forecast. However, with potential output growth also having been revised a little
lower over the medium term (as well as in the longer run), the output gap is unchanged through
2018 and a bit higher in 2019. Correspondingly, the unemployment rate is unrevised through 2018
and, at 4.2 percent, a tenth lower at the end of 2019.
The staff’s forecast for PCE price inflation—both total and core—is essentially unchanged from
June. We continue to project that inflation will move up in the coming years, with total PCE price
inflation reaching 1.9 percent by 2019.
We have lowered the assumed longer-run value of the real equilibrium federal funds rate to
0.75 percent in this forecast, down from 1.0 percent in the June Tealbook. The intercept-adjusted
inertial Taylor (1999) rule that we use in our baseline forecast (introduced in the June Tealbook)
prescribes a path of the nominal federal funds rate that rises a bit more slowly and reaches an
average of 3.19 percent in the fourth quarter of 2019, 15 basis points less than in our June
projection—primarily reflecting the effect of the lower longer-run equilibrium rate.

Staff Economic Projections Compared with the June Teal book
2016
Variable
HI

2016

2017

2018

2019

Longer run

RealGDP 1
June Tealbook

1.5

2.5
2.3

1.8
1.9

2.4
2.4

2.0
2.1

1.7
1.6

1.7
1.9

Unemployment rate 2
June Tealbook

4.9
4.8

4.5
4.5

4.3
4.3

4.2
4.3

5.0
5.0

PCE inflation I
June Tealbook

I.I
1.2

1.2
1.4

1.2
1.3

1.6
1.7

1.8
1.8

1.9
1.9

2.0
2.0

Core PCE inflation 1
June Tealbook

1.9
1.9

1.3
1.3

1.6
1.6

1.8
1.8

1.9
1.9

n.a.
n.a.

Federal funds rate 2
June Tealbook

.37
.40

.64
.77

1.50
1.61

2.49
2.65

3.19
3.34

2.75
3.00

Memo:
Federal funds rate,
end of period
June Tealbook

.38
.44

.71
.83

1.58
1.70

2.57
2.73

3.24
3.38

2.75
3.00

GDP gap2,3
June Tealbook

-.1
-.1

.2
.3

I.I

1.5
1.5

1.5
1.3

n.a.
n.a.

I.I

l. Percent change from final quarter of preceding period to final quarter of period indicated.
2. Percent, final quarter of period indicated.
3. Percent difference between actual and potential. A negative number indicates that the economy is operating below potential.
n.a. Not available.

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September 14, 2016

KEY BACKGROUND FACTORS
Monetary Policy


In the inertial Taylor (1999) rule that we use to mechanically set the federal
funds rate in our projection, we lowered the real long-run equilibrium rate (r*)
from 1 percent to ¾ percent.1 The path of the time-varying intercept
converges to the new long-run value for r* on the same time frame as
before—namely, by the end of 2018. However, these adjustments are small,
and the resulting path of the federal funds rate is close to the one in the July
Tealbook. All told, the current rule calls for the federal funds rate to increase
about 85 basis points per year over the projection period and to average
3.2 percent in the fourth quarter of 2019, about 45 basis points above its
neutral level.



As in the July Tealbook, we assume that the SOMA portfolio will remain at
its current level until the third quarter of next year and then begin to contract
as the proceeds from maturing assets are no longer reinvested.

Other Interest Rates


The projected path of the 10-year Treasury yield is lower than in the July
projection, mostly reflecting our assessment that the factors holding down
term premiums will be more persistent than we had previously assumed. We
revised down the medium-term path of the term premium between 15 and
40 basis points and revised down its assumed long-run value 10 basis points.2
Nevertheless, our projection continues to call for the 10-year Treasury yield to
rise significantly over the medium term, as the 10-year valuation window
moves through the period of extremely low short-term interest rates and term
premiums increase very gradually toward more normal levels.



Investment-grade corporate bond spreads continued to trend down since late
July, leading us to revise down our projection for investment-grade corporate

See the September 9, 2016, memo sent to the FOMC titled “Adjustments to Some Long-Term
Parameters of the Staff Judgmental Forecast” by Cristina Fuentes-Albero and Ashley Wang, which
discusses our adjustments to the assumed long-run values of the real equilibrium interest rate, the term
premium, and potential GDP growth.
2

See Fuentes-Albero and Wang (2016), “Adjustments to Some Long-Term Parameters,” in note 1.

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Key Background Factors underlying the Baseline Staff Projection

Federal Funds Rate

Long-Term Interest Rates
Percent

Percent

Quarterly average

Quarterly average
10
Current Tealbook
Previous Tealbook

Conforming
mortgage rate
4

Triple-B
corporate yield

6
5

4
10-year
Treasury yield

3
2

2007

2009

2011

2013

2015

2017

2019

2007

2009

2011

2013

2015

2017

2019

House Prices

Equity Prices
Ratio scale, 2007:Q1 = 100
Quarter-end

Dow Jones
U.S. Total Stock Market
Index

Ratio scale, 2007:Q1 = 100
200
185
170
155
140

110
Quarterly
105
100

125

110

CoreLogic
Index

80
75

70
50
2007

2009

2011

2013

2015

2017

2019

2007

Crude Oil Prices
Dollars per barrel

2013

2015

2017

2019

2007:Q1 = 100

140

110

Quarterly average

Imported oil

West Texas
Intermediate

2009

2011

Broad Real Dollar

Quarterly average

2007

2009

2011

2013

2015

2017

2019

120

105

100

2007

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2009

2011

2013

2015

2017

2019

Class II FOMC – Restricted (FR)

September 14, 2016

yields slightly more than that for 10-year Treasury yields. By contrast, the
path of 30-year fixed mortgage rates was revised down broadly in line with
Treasury yields.

Equity Prices and Home Prices


Stock prices in the current quarter were revised down a touch compared with
the forecast in the July Tealbook, reflecting recent decreases in broad equity
indexes. Equity prices are projected to rise at an average annual rate of
1¾ percent over the medium term.



Recent data on house prices were a bit softer than we had expected, leading us
to slightly lower the projected increase for 2016 to 5½ percent. Our
projection for annual increases averaging 3¾ percent from 2017 through 2019
is close to pace in the July Tealbook.

Fiscal Policy


We continue to assume that discretionary policy actions at all levels of
government will boost real GDP growth almost ½ percentage point this year
and next, with smaller contributions in 2018 and 2019. We assume that a
continuing resolution will be passed by the Congress to fund discretionary
federal spending and that a shutdown of the government will be avoided
this fall.

Foreign Economic Activity and the Dollar


Foreign real GDP growth is estimated to have slowed to an annual rate of less
than 1 percent in the second quarter, held down by transitory contractions in
Canada and Mexico. We expect growth to bounce back to 2½ percent in the
second half of this year, the same as in the July Tealbook. Although the
outlook for EME growth has weakened slightly, we pared back the negative
effects we expect from Brexit on the U.K. and euro-area economies. After
this year, foreign growth is projected to edge up toward 2¾ percent for the
remainder of the forecast, supported in part by accommodative monetary
policy abroad.



The broad nominal dollar is ½ percent lower in the near term than in the July
Tealbook in light of dollar depreciation that has occurred against the

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currencies of the advanced foreign economies. However, we expect a steeper
path of dollar appreciation over the forecast period, as we reassessed our
assumption about the path of the Chinese renminbi and increased the
sensitivity of the dollar to projected market surprises in policy interest rates.
All told, the broad real dollar is about 1¼ percent higher by the end of 2018
than in the July Tealbook.
o We now assume the dollar will appreciate against the renminbi at a
2 percent annual rate until the end of 2016 and then at a 1 percent pace
through the end of the forecast period. Previously, we had assumed the
dollar would depreciate at a 2 percent pace starting in the second half
of 2017.
o We now assume the dollar will increase 3 percent against all floating
currencies for each 100 basis points of policy rate surprise, consistent with
the experience of the past seven years. We had previously assumed a
sensitivity of 2.5 percent for AFE currencies and about 2 percent for
floating EME currencies.

Oil Prices


Over the past few months, spot oil prices have fluctuated within a range from
about $40 to just over $50 per barrel; they currently stand at $47 per barrel,
unchanged relative to the close of the July Tealbook. Futures prices are down
about $1 per barrel since the close of the July Tealbook, with the December
2019 Brent futures prices currently at $56 per barrel.

THE OUTLOOK FOR REAL GDP
Real GDP growth is expected to pick up from a 1 percent pace in the first half of
the year to a 2½ percent pace in the second half, reflecting a modest step-up in PDFP
growth and a more sizable upswing in inventory investment.3

As displayed in the table “Federal Reserve System Nowcasts of 2016:Q3 Real GDP Growth,” the
median of the projections generated by the near-term forecasting approaches used within the System, at
2.6 percent, is close to the staff’s judgmental projection of 2.7 percent in the third quarter.

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

September 14, 2016

Recent information on consumer spending has been slightly stronger, on
balance, than we expected in our previous projection.4 Our forecast of real
PCE growth of about 3 percent in the third quarter also reflects upbeat
consumer sentiment, continued solid gains in employment and household
income, and past increases in household wealth.5



In contrast, incoming data on residential construction have been weaker than
we had previously forecast. Single-family permits—which we think are the
best indicator of the underlying trend in residential construction—had been
moving essentially sideways since late last year and then declined sharply in
July. As a result, we marked down our forecast for residential investment in
the near term and now anticipate declines in each of the second through fourth
quarters of this year.



We expect business fixed investment to remain relatively subdued in the
second half of 2016, although not as dismal as over the past several quarters.
After declining in the first half of the year, investment in equipment and
intangibles (E&I) appears to be on track to rise about 2 percent in the current
quarter. The collapse in investment in drilling and mining structures is
expected to end next quarter, as the effects of earlier declines in crude oil
prices dissipate. For other types of nonresidential structures, recent indicators
suggest investment has picked up in the current quarter, in contrast to the
decline we had expected in the July Tealbook.



The staff’s flow-of-goods inventory system points to no major inventory
imbalances outside the energy sector. Partly on that basis, we expect
investment in business inventories to step up in the second half of the year,
especially as PDFP growth remains solid.



Net exports, after contributing a small positive amount to GDP growth in the
first half of the year, are projected to subtract about ¼ percentage point from
real GDP growth in the second half, as imports increase and exports continue

A first estimate of retail sales for August will be released on Thursday, September 15, the day
after Tealbook A closes.
5
Another indicator of income growth is a Census Bureau report released on September 13, 2016,
showing that real median household income rose more than 5 percent in 2015, the first increase since 2007.
In addition, the poverty rate declined 1.2 percentage points, to 13.5 percent.

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Federal Reserve System Nowcasts of 2016:Q3 Real GDP Growth
(Percent change at annual rate from previous quarter)
Federal Reserve entity
Federal Reserve Bank
New York

Type of model





Cleveland




Nowcast
as of
Sept. 13,
2016

Factor-augmented autoregressive model combination
Factor-augmented autoregressive model combination,
financial factors only
Dynamic factor model

1.4
1.9

Bayesian regressions with stochastic volatility
Tracking model

2.6
4.1

2.8

Atlanta



Tracking model combined with Bayesian vector
autoregressions (VARs), dynamic factor models, and
factor-augmented autoregressions (known as
GDPNow)

3.2

Chicago



Dynamic factor models
Bayesian VARs

2.6
3.0



Dynamic factor models
News index model
Let-the-data-decide regressions

2.0
3.6
2.3



Accounting-based tracking estimate

3.7



Board staff’s forecast (judgmental tracking model)1
Monthly dynamic factor models (DFM-45)2
Mixed-frequency dynamic factor model (DFM-BM)3

2.8
1.9
2.3



St. Louis




Kansas City
Board of Governors




Memo: Median of
Federal Reserve
System nowcasts
1.
2.
3.

2.6

The September Tealbook forecast, finalized on September 14, is 2.7 percent.
Previously referred to as “dynamic factor models.”
New mixed-frequency model estimated as in Marta Banbura and Michele Modugno (2014),
“Maximum Likelihood Estimation of Factor Models on Datasets with Arbitrary Pattern of
Missing Data,” Journal of Applied Econometrics, vol. 29 (January/February), pp. 133–160.

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to be held down by a strong dollar and weak foreign demand. Relative to the
July Tealbook, we now project a somewhat smaller drag on GDP growth from
net exports in the second half, as import growth continues to be surprisingly
weak, while export growth in July was stronger than we had expected.


Manufacturing production increased substantially in July, but available
physical product data and readings on production worker hours for August
suggest that production likely declined last month. Taking a longer view,
manufacturing output has been little changed, on net, since the end of 2014, as
weak export demand and the spillovers from the decline in oil and gas drilling
have weighed on industrial activity. We expect factory output to continue on
this flat trajectory over the second half of the year, consistent with recent
mixed readings on new orders from the national and regional manufacturing
surveys.

After this year, real GDP growth is projected to step up to 2½ percent in 2017,
mostly reflecting increases in the pace of both residential and business investment as well
as a waning drag from the dollar appreciation since mid-2014. GDP growth eases to
2 percent in 2018 and 1¾ percent in 2019 as monetary policy gradually normalizes and
the stimulus from fiscal policy diminishes.


Our projection for real GDP growth in 2017 through 2019 is a touch weaker
than in the July Tealbook, reflecting a slightly slower assumed pace of
potential output growth. Other changes in key financial and foreign
background factors were essentially offsetting, as the path of longer-term
interest rates is somewhat lower, while the path for the dollar is a little higher.



If long-term rates fail to rise as much as is assumed in the baseline, then real
GDP growth may be stronger and the unemployment rate lower than the
Tealbook forecast. (For more on this possibility, see the alternative view box
“A Return to the Greenspan Conundrum” and the accompanying scenario in
the Risks and Uncertainty section.)



With GDP growth expected to outpace our estimate of potential growth over
the medium term, real GDP at the end of 2018 and 2019 is projected to be
1½ percent above its potential, essentially the same as in the July Tealbook.

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Alternative View: A Return to the Greenspan Conundrum
A well-known theorem in international monetary economics is the impossible trinity: A
country cannot simultaneously have (1) a fixed exchange rate, (2) free capital mobility,
and (3) independent monetary policy. Hélène Rey (2013) argued that the globalized
financial system has transformed the impossible trinity into an “impossible binity”:
With or without a fixed exchange rate, a small open economy cannot control its
monetary conditions as long as its capital account is open. 1 In this discussion, I take
Rey’s line of thought a step further and consider the possibility that, regardless of the
exchange rate regime, no country with free capital mobility, even a large one, can fully
control its own monetary and financial conditions in today’s globalized financial
system. As I will show, some evidence for this theory has already manifested itself as
the “Greenspan conundrum,” a phenomenon in which long-term interest rates failed to
rise in response to the steep monetary policy tightening from 2004 to 2006.
In principle, monetary policy independence and flexible exchange rates could afford a
central bank considerable influence over interest rates across the maturity spectrum
even if resulting in substantial divergence in long-term interest rates relative to other
economies. For example, the Federal Reserve might communicate that it expected to
tighten policy while other central banks sent no such signal, which could cause longterm U.S. interest rates to rise relative to those abroad. Under the assumption of
uncovered interest parity (UIP), investors would have no reason to pile into U.S. assets
and thus “arbitrage away” this higher yield, because the higher U.S. yield would be
offset by an expected dollar depreciation that was large enough to equalize expected
returns across assets.
This UIP-based rationale for sizable cross-country long-term interest rate differentials
seems belied both by the well-known failure of UIP and by historical experience,
however. In particular, during the 2004–06 U.S. tightening cycle, a large interest rate
gap opened between the U.S. economy and other advanced economies, especially
Japan, creating a large carry-trade opportunity. If UIP held, the carry trade would be
unprofitable on average because any gains from the interest rate differential would be
offset by a depreciation of the dollar. In reality, this prediction failed and the U.S. dollar
appreciation and large capital inflows continued, driving down long-term yields and
leading to the Greenspan conundrum.
The Greenspan conundrum can be shown econometrically. The figures on the next
page show the impulse response functions from a bivariate vector autoregression
using the monthly federal funds rate and 10-year Treasury bond rate over two periods,
1962 to 1995 and 1996 to 2006. The two figures show the impulse responses of the
Note: This alternative view was prepared by Jae Sim.
1 Hélène Rey (2013) “Dilemma Not Trilemma: The Global Financial Cycle and Monetary Policy
Independence,” paper presented at “Global Dimensions of Unconventional Monetary Policy,” a
symposium sponsored by the Federal Reserve Bank of Kansas City, held in Jackson Hole, Wyo., on
August 24, https://www.kansascityfed.org/publicat/sympos/2013/2013Rey.pdf.

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10-year Treasury yield to a shock to the federal funds rate. In the left-hand figure, one
can easily see the statistically significant and persistent effect of the policy rate on the
long-term yield. The right-hand figure, however, shows that the response of the longterm yield during the later period was much lower and statistically not distinguishable
from zero. Control of the long-term yield by the policy rate appears to have been lost.
To the extent that monetary policy works by affecting the slope of the yield curve, the
Greenspan conundrum does not necessarily mean that U.S. monetary policy is
powerless. However, to the extent that monetary policy also works by affecting the
levels of various long-term borrowing rates, the conundrum suggests that the Federal
Reserve might have lost a substantial part of the control of its monetary and financial
conditions, at least through the federal funds rate. In fact, between the second half of
2004 and the first half of 2006, the federal funds rate was raised as much as 450 basis
points. However, this steep increase in the short-term interest rate failed to prevent
market participants from overinvesting in long-term U.S. assets.
In today’s globalized financial system, the short-term interest rate of a local financial
market cannot perfectly control the funding conditions faced by investors because
money can be raised in any funding currency provided that market risk appetite is
strong enough. As the federal funds rate rises over the next few years, the longer-term
Treasury rate may not rise as much as is predicted in the baseline. Dollar appreciation
due to capital inflows may not be enough to offset the stimulus effect of the low longterm rates. This scenario suggests the importance of more direct control of longerterm interest rates—for example, via the large-scale asset purchase (LSAP) program.
In the event that the U.S. economy faces significant upward pressure on inflation, the
Federal Reserve could consider a “reverse LSAP” policy.
Response of the 10-Year Treasury Bond Rate to a
One Standard Deviation Shock to the Federal Funds Rate
Response of RG10E to RFFE
(1962m1-1995m12)

Response of RG10E to RFFE
(1996m1-2006m12)

.25

.20

.15

.10

.05

.00

-.05

-.10

-.10
5

Note: Red dashed lines indicate the 95 percent confidence interval.
Source: staff calculation.

Page 13 of 100

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September 14, 2016

Summary of the Near-Term Outlook
(Percent change at annual rate except as noted)
2016:Q2

2016:Q3

2016:H2

Measure

Previous
Tealbook

Current
Tealbook

Previous
Tealbook

Current
Tealbook

Previous
Tealbook

Current
Tealbook

Real GDP
Private domestic final purchases
Personal consumption expenditures
Residential investment
Nonres. private fixed investment
Government purchases
Contributions to change in real GDP
Inventory investment1
Net exports1
Unemployment rate
PCE chain price index
Ex. food and energy

1.8
2.8
4.2
-3.5
-2.8
-1.1

1.4
3.2
4.4
-7.8
-.1
-1.5

1.9
2.7
2.8
-.7
3.1
2.3

2.7
2.5
3.0
-5.0
2.3
1.7

2.0
2.6
2.6
.3
3.1
2.2

2.5
2.5
2.6
-3.1
3.7
2.2

-.3
-.1
4.9
1.9
1.7

-1.2
.2
4.9
2.0
1.8

.0
-.8
4.9
1.1
1.4

.5
-.2
4.9
1.1
1.3

-.1
-.4
4.9
1.2
1.3

.3
-.3
4.9
1.2
1.3

1. Percentage points.
Recent Nonfinancial Developments (1)
Manufacturing IP ex. Motor Vehicles
and Parts

Real GDP and GDI
4-quarter percent change
Gross domestic product
Gross domestic income

3-month percent change, annual rate

20
15

6
July

10
5

-5
0

-10

-2

-15
-20

-4
2004
2006
2008
2010
2012
2014
2016
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

-25

-6

2004
2006
2008
2010
2012
2014
2016
Source: Federal Reserve Board, G.17 Statistical Release,
"Industrial Production and Capacity Utilization."

Sales and Production of Light Motor
Vehicles

-30

Real PCE Goods ex. Motor Vehicles

Millions of units, annual rate

Billions of chained (2009) dollars

3800
3600

Aug.
18

July
3400

Sales

3200

July

3000

2800

Production
6

2600
2004
2006
2008
2010
2012
2014
2016
Source: Ward’s Communications; Chrysler; General Motors;
FRB seasonal adjustments.

2004
2006
2008
2010
2012
2014
2016
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

Page 14 of 100

2400

Class II FOMC – Restricted (FR)

September 14, 2016

Recent Nonfinancial Developments (2)
Single-Family Housing Starts and Permits

Home Sales

Millions of units
(annual rate)
Adjusted permits
Starts

2.1
1.8

7.5

Millions of units
(annual rate)

1.2

1.5

Existing homes
(left scale)

6.0

July

0.9

4.5

0.6

4.0

0.9
New single-family
homes (right scale)

0.6

3.5
0.3
2004

2006

2008

2010

2012

2014

2016

0.0

1.2

5.5
5.0

July

1.8

7.0
6.5

1.5

Millions of units
(annual rate)

0.3

3.0
2.5

2004

2006

2008

2010

2012

2014

2016

0.0

Source: For existing, National Association of Realtors;
for new, U.S. Census Bureau.

Note: Adjusted permits equal permit issuance plus total starts
outside of permit-issuing areas.
Source: U.S. Census Bureau.

Nondefense Capital Goods ex. Aircraft

Nonresidential Construction Put in Place

Billions of dollars

Billions of chained (2009) dollars

450

3-month moving average
70
July
Orders

400

65
July

Shipments

350

60
55

300

50
250
45
2004
2006
2008
2010
Source: U.S. Census Bureau.

2012

2014

2016

2004
2006
2008
2010
2012
2014
2016
Note: Nominal CPIP deflated by BEA prices through
2016:Q1 and by the staff’s estimated deflator thereafter.
Source: U.S. Census Bureau.

Inventory Ratios

Exports and Non-oil Imports
Months

Billions of dollars

1.9

July

200

1.7
Non-oil imports

180

1.6
Staff flow-of-goods system

July

140
1.4

120

1.3

100
Exports

1.2

Census book-value data
2008

160

1.5
July

2006

240
220

1.8

2004

200

2010

2012

2014

2016

1.1

Note: Flow-of-goods system inventories include manufacturing
and mining industries and are relative to consumption. Census
data cover manufacturing and trade, and inventories are relative
to sales.
Source: U.S. Census Bureau; staff calculations.

2004

2006

80
2008

2010

2012

2014

2016

Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis; U.S. Census Bureau.

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September 14, 2016

THE OUTLOOK FOR THE LABOR MARKET AND AGGREGATE SUPPLY
Labor market conditions have continued to improve this year, albeit more slowly
than in 2015. Taken together, the July and August employment reports indicate that
conditions improved a little more than expected in the July Tealbook.


Total nonfarm payroll employment is currently reported to have increased
151,000 in August after having risen 275,000 in July.6 We anticipate that total
payrolls will increase 175,000 per month, on average, over the remainder of
this year, 10,000 faster than in our July projection.



In the household survey, the unemployment rate was 4.9 percent in August,
unchanged since June and down only 0.1 percentage point since December of
last year. The labor force participation rate was unchanged in August and has
increased about 0.2 percentage point since last December. We expect the
unemployment rate to remain at 4.9 percent in the fourth quarter and the
participation rate to decline 0.1 percentage point by the end of the year,
roughly in line with its downward trend. These forecasts are quite close to the
July Tealbook projections.



We continue to estimate that little slack remains in the labor market. In the
current quarter, our projection puts the unemployment rate 0.1 percentage
point below our estimate of its natural rate, while the participation rate and the
employment-to-population ratio are close to their trends. In addition, we view
the share of employees working part time for economic reasons, which has
been little changed since late last year, as slightly elevated and likely
representing a small source of labor underutilization.



Taken at face value, the labor market conditions index (LMCI) points to a
small deterioration in labor market conditions so far this year, whereas the
staff’s assessment is that labor market conditions have been gradually
improving, though at a slower pace than last year.

As we noted a year ago, in each year from 2009 to 2014, the initially reported changes in
nonfarm payrolls for August were subsequently revised up, with an average revision of about 75,000. In
contrast, the payroll gain in August 2015 was subsequently revised down 20,000. Given this information,
we have penciled in an upward revision of 30,000 to the August payroll gain, but this point estimate has a
wide confidence interval.

Page 16 of 100

Class II FOMC – Restricted (FR)

September 14, 2016

We have lowered the projected paths for growth in structural productivity and in
potential GDP in this forecast.


In response to continued downward surprises to productivity growth over the
past several years, we have revised down our assumptions for structural
productivity growth to 1 percent this year, 1.1 percent next year and the year
after, and 1.2 percent in 2019; this path is between 0.1 and 0.2 percentage
point lower than in our previous forecast.



We have also lowered our assumed path for potential GDP growth to
1.5 percent this year and next, 1.6 percent in 2018, and 1.7 percent in 2019.
This path is about 0.1 percentage point per year lower than in the previous
projection.

The medium-term outlook for the labor market is close to our July projection.


We expect average monthly total payroll gains to slow from around 180,000
for 2016 as a whole to about 145,000 in 2018 and 110,000 in 2019. We
estimate that the pace of payroll employment growth consistent with
unchanged labor utilization is between 85,000 and 115,000 per month. (For a
discussion of this calculation, see the box “The Neutral Pace of Payroll
Employment Gains.”)



We continue to estimate that conditions will tighten further in the next couple
of years.
o By the end of 2019, the unemployment rate is projected to be
4.2 percent—0.8 percentage point below our estimate of its natural rate.
o In addition, we project the labor force participation rate to edge down a
touch more slowly than its trend over the medium term, as sustained job
gains and rising wages continue to draw individuals into the labor force
while also slowing outflows. As a result, the participation rate is projected
to be about 0.2 percentage point above our estimate of its trend level at the
end of 2019.

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The Neutral Pace of Payroll Employment Gains
A usefulbenchmarkfor evaluating thestrengthof monthly payroll employment gains
(measured inthe establishment survey) is its “neutral pace”—the number ofjobs
needed per month to holdlabor market conditionsunchanged,withtheunemployment
rate remaining at its current level andthe labor force participation rate (LFPR) declining
at its trendrate. The key determinantsof thisneutral pace are the trend rate of labor
force growth and the difference betweenmonthly job gains in the payrolland
householdsurveys. Thisdiscussionexplainshowassumptionsabout thesetwofactors
influenceestimates for theneutral pace of payrolljob gains.

Labor force growth is determined by population growthandchangesinthe LFPR. The
table below providesestimates ofemployment gainsneededto holdthe
unemployment rate unchanged at 4.9 percent over the next year,assumingthat the
populationgrows1percent annually(about thesame as its recent five-year averageand
in line with the staff's expectation for the next few years)and allowing for different
assumptionsabout the annualchangeintheLFPR.1 The estimates in the first row
assume that employment gainsinthe payroll andhouseholdsurveysarethe same on
average(an assumptionthat will be relaxed later). With these assumptions, the
monthlypace needed to holdthe unemployment rate unchangedrangesfrom125,000
jobs whenthe LFPRis flat to 45,000jobs whenthe LFPR falls 0.4percentage point
per year.

Employment gains, however, sometimes differ substantiallybetweenthe two surveys,
resulting in a different pace than what is shownin thefirst row of the table. For
example, during an expansion, employment gainsin theestablishment surveytypically
exceed thosein the household survey.2 The pace of job gainsneededto hold the
Monthly payroll employment gains needed to hold the unemployment rate unchanged

Annual change in the LFPR (in percentage points)
0.0

-0.1

-0.2

-0.3

-0.4

125

105

Monthly pace (in thousands), assuming:
No difference in employment gains
between surveys

Monthly employment gains in the
establishment survey are 20,000 to
50,000 faster

145 to 175 125 to 155 105 to 135 85 to 115

65 to 95

Note: Shaded column corresponds with staff estimate for the trend decline in the LFPR.
Source: Staff estimates.

1 A 0.2 percentage point deviation in population growth from this assumption in eitherdirection
would add or subtract about 25,000 jobs permonth .
2 As shown in Abraham and others (2013), two important factors contributing to faster
employmentgains in theestablishmentsurvey than in the household survey duringan expansion are
an increase in short-duration jobs (which aremore likely to be captured in the payroll survey than in
the household survey) and a decrease in off-the-books jobs (which could be captured bythe

Class II FOMC – Restricted (FR)

September 14, 2016

unemployment rate unchanged can be adjusted for the expected difference in monthly
employment gains between the surveys by simply adding the difference to the
estimates in the first row. Assuming that employment gains in the establishment
survey outpace employment gains in the household survey by 20,000 to 50,000 per
month—a range consistent with the central tendency of the monthly difference
between the two surveys since 2013—estimates of the monthly pace, as shown in the
second row, are therefore 20,000 to 50,000 higher than those shown in the first row. 3
Given this range, and with the LFPR declining at the staff’s estimate of its trend, the
neutral pace of job gains needed to hold the unemployment rate unchanged while
absorbing steady-state growth in the labor force is between 85,000 and 115,000.
Despite the cyclical regularity of the difference in employment gains between the two
surveys, the realized difference can vary significantly at times. For example, as shown
in the figure, over the past few years, the 3-month moving average of the difference in
monthly employment gains between the two surveys has ranged from plus 450,000 to
minus 350,000, and the 12-month moving average of the difference has ranged from
plus 150,000 to minus 100,000. As a result, the neutral pace of payroll job gains can also
vary widely.

Deviation in monthly employment changes (in thousands), establishment survey
relative to household survey

household survey but are unlikely to be measured in the establishment survey). See Katharine G.
Abraham, John Haltiwanger, Kristin Sandusky, and James R. Spletzer (2013), “Exploring Differences in
Employment between Household and Establishment Data,” Journal of Labor Economics, vol. 31 (2), pp.
S129–72.
3 As an illustration of the range of reasonable estimates, Altig and Higgins (2016) report a neutral
pace of around 80,000, and Aaronson, Brave, and Kelley (2016) report a neutral pace of around
50,000. See Dave Altig and Pat Higgins (2016), “How Good is the Employment Trend? Decide for
Yourself,” macroblog, Federal Reserve Bank of Atlanta (Atlanta: FRB Atlanta) July 15,
http://macroblog.typepad.com/macroblog/2016/07/how-good-is-employment-trend-decide-foryourself.html; and Daniel Aaronson, Scott A. Brave, and David Kelley (2016), “Is There Still Slack in the
Labor Market?” Federal Reserve Bank of Chicago, Chicago Fed Letter No. 359 (Chicago: FRB Chicago),
https://www.chicagofed.org/publications/chicago-fed-letter/2016/359.

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Alternative Measures of Slack
The red line in each panel is the staff’s measure of the unemployment rate gap (right axis).

Output Gaps*

Manufacturing capacity utilization gap*
Percentage points

FRB/US
EDO*** production function gap
FRBNY
PRISM**

28.8

19.2

9.6

0.0

Percentage points

July

Jobs Hard to Fill Gap*

25.8

Percentage points

17.2
8.6

Aug.
-2

-9.6

-2

-4

-19.2

-4

-6

-28.8

2.22

1998
2001
2004
2007
Source: Federal Reserve Board.

Job Openings Gap*

1.48

0.74

Percentage points

2010

2013

Percentage points

0.00

-8.6

-2

-0.74

-17.2

-4

-1.48

-25.8

-6
1998
2001
2004
2007
2010
2013
2016
Note: Percent of small businesses surveyed with at least one
"hard to fill" job opening. Seasonally adjusted by Federal Reserve
Board Staff.
Source: National Federation of Independent Business,
Small Business Economic Trends Survey.

-2.22

Job Availability Gap*

-6

6
4
2

Aug.

0.0

Percentage points

2016

Adjusted Help Wanted
Private job openings rate

Aug.

2
0

1998
2001
2004
2007
2010
2013
2016
** PRISM uses a flex-price output gap.
*** EDO is Estimated, Dynamic, Optimization-based model.
Source: Federal Reserve Board; PRISM: Federal Reserve
Board Bank of Philadelphia, PRISM Model Documentation
(June 2011); FRBNY: Federal Reserve Bank of New York Staff
Report 618 (May 2013, revised April 2014).

0
Aug.

July

-2
-4

-6
1998
2001
2004
2007
2010
2013
2016
Note: Job openings rate is the number of job openings divided
by employment plus job openings. Help Wanted adjusted following
Cajner and Ratner (2016).
Source: Job Openings and Labor Turnover Survey; U.S.
Department of Labor, Bureau of Labor Statistics, Current
Employment Statistics; Conference Board, Help Wanted OnLine.

Involuntary Part-Time Employment Gap
Percentage points

Percentage points

5.4

3.6

1.8

-0.0

-33

-2

-1.8

-2

-66

-4

-3.6

-4

-6

-5.4

66
33

6
4

Aug.

-99

1998
2001
2004
2007
2010
2013
2016
Note: Percent of households believing jobs are plentiful minus
the percent believing jobs are hard to get.
Source: Conference Board.

1998
2001
2004
2007
2010
2013
2016
Note: Percent of employment.
Source: U.S. Department of Labor, Bureau of Labor Statistics,
Current Population Survey.

* Plots the negative of the gap to have the same sign as the unemployment rate gap.
Note: The shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research. Output gaps are
multiplied by negative 0.54 to facilitate comparison with the unemployment rate gap. Manufacturing capacity utilization gap is constructed by
subtracting its average rate from 1972 to 2013. Other gaps were constructed by subtracting each series’ average in 2004:Q4 and 2005:Q1.

Page 20 of 100

-6

Class II FOMC – Restricted (FR)

September 14, 2016

THE OUTLOOK FOR INFLATION
Core PCE prices rose 1.6 percent in the 12 months ending in July, and we
continue to expect that 12-month changes in core prices will remain close to this pace
through the end of the year. The 12-month change in total PCE prices was 0.8 percent in
July, and we expect it to rise to 1.3 percent by December as the large declines in gasoline
prices late last year drop out of the 12-month comparison.


Data on core PCE prices through July are in line with our expectations that
core inflation, on a quarterly basis, will slow from an average annual rate of
1.9 percent in the first half of the year to a 1.3 percent pace in the second
half.7 This step-down reflects a deceleration in prices in some volatile
categories that showed outsized gains early in the year as well as some
residual seasonality.8



PCE energy prices declined in July but are expected to edge up, on balance,
over the second half of the year, as crude oil prices are projected to rise.



Consumer food price inflation is expected to continue running below the pace
of core inflation over the second half of the year: PCE food prices declined in
July, and food commodity prices have moved down further as harvests are
turning out to be more bountiful than previously forecast.



Core import prices are projected to increase at an annual rate of 2½ percent in
the third quarter, an elevated pace that reflects recent dollar depreciation.
With the dollar expected to appreciate, we project these prices will rise at a
more moderate ¾ percent pace through the rest of the forecast period.



Recent readings on longer-term inflation expectations have remained
relatively stable on balance. Expected PCE inflation over the next 10 years
from the Federal Reserve Bank of Philadelphia’s Survey of Professional
Forecasters remained at 2 percent. The median inflation expectation over the
next 5 to 10 years from the Michigan survey, at 2.5 percent in August, was

Data for the CPI in August will be released on Friday, September 16.
For example, nonmarket services prices, a category from which we take little signal for future
price changes, climbed at a 4 percent pace in the first half of this year compared with a 3¼ percent increase
in 2015. In addition, some categories of goods showed large increases earlier this year that we expect to be
transitory, such as an outsized jump in jewelry prices.
8

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Inflation Forecasts since the December 2015 Tealbook
PCE Price Index
4-quarter percent change
Current forecast
December 2015 Tealbook
January 2016 Tealbook
March 2016 Tealbook
April 2016 Tealbook

June 2016 Tealbook
July 2016 Tealbook

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5

2015
2015

2016

2017

2018

0.0

Core PCE Price Index
4-quarter percent change
Current forecast
December 2015 Tealbook
January 2016 Tealbook
March 2016 Tealbook
April 2016 Tealbook

June 2016 Tealbook
July 2016 Tealbook

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5

2015
2015

2016

2017

2018

0.0

Core CPI
4-quarter percent change
Current forecast
December 2015 Tealbook
January 2016 Tealbook
March 2016 Tealbook
April 2016 Tealbook

June 2016 Tealbook
July 2016 Tealbook

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5

2015
2015

2016

2017

2018

Note: Blue shading represents the 70 percent confidence interval for the December 2015 projection.
Confidence intervals are computed using historical errors from December staff forecasts since 1998. See
appendix, ‘‘Technical Note on Prediction Intervals Derived from Historical Tealbook Forecast Errors,’’ in
the Risks and Uncertainty section. The dotted vertical lines denote the most recent quarter of data.
Source: Staff projections and judgmental rules of thumb.
Page 22 of 100

0.0

Class II FOMC – Restricted (FR)

September 14, 2016

Sources of Inflation Forecast Revisions since the December 2015 Tealbook
Total PCE

Percentage points
0.7

Revision to projection
0.6

Source of revision:
Energy
Food
Core

0.5
0.4
0.3
0.2
0.1
0.0
-0.1
-0.2
-0.3
-0.4
-0.5
-0.6

2015

2016

2017

2018

Core PCE

-0.7

Percentage points
0.7

Revision to projection
0.6

Source of revision:
Import pass-through
Energy pass-through
Resource utilization
Underlying inflation/expectations
Other

0.5
0.4
0.3
0.2
0.1
0.0
-0.1
-0.2
-0.3
-0.4
-0.5
-0.6

2015

2016

2017

Source: Staff projections and judgmental rules of thumb.
Page 23 of 100

2018

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Survey Measures of Longer-Term Inflation Expectations

CPI Next 10 Years

CPI Forward Expectations
Percent

Percent

3.0

2.5

Mar.

3.0

June

Apr. Sept.

2.0

SPF median, 6 to 10 years ahead
Blue Chip mean, 7 to 11 years ahead
Primary dealers median, 5 to 10 years ahead
Consensus Economics mean, 6 to 10 years ahead

1.5

SPF median
Livingston Survey median
1.0

2008
2010
2012
2014
2016
Note: SPF is Survey of Professional Forecasters.
Source: Federal Reserve Bank of Philadelphia.

PCE Next 10 Years

2008
2010
2012
2014
2016
Source: Federal Reserve Bank of Philadelphia; Blue Chip
Economic Indicators; Federal Reserve Bank of New York;
Consensus Economics.

2.0

1.5

1.0

PCE Forward Expectations
Percent

Percent

3.0

SPF median, 6 to 10 years ahead
2.5

2.5

SPF median
Q3

2010
2008
2012
2014
Source: Federal Reserve Bank of Philadelphia.

Q3
2.0

2.0

1.5

1.0

2016

Surveys of Consumers

2008
2010
2012
2014
Source: Federal Reserve Bank of Philadelphia.

2016

1.0

Survey of Business Inflation Expectations
Percent

Percent

4.0

3.5

4.0

3.5

Mean increase in unit costs, next 5 to 10 years

Aug.

3.0

Q3
2.5

2.5

Michigan median increase in prices, next 5 to 10 years
FRBNY median increase in prices, 3 years ahead

2010
2008
2012
2014
2016
Note: Federal Reserve Bank of New York (FRBNY) Survey
of Consumer Expectations reports expected 12-month inflation
rate 3 years from the current survey date. FRBNY data begin
in June 2013.
Source: University of Michigan Surveys of Consumers;
Federal Reserve Bank of New York Survey of Consumer
Expectations.

2.0

2008
2010
2012
2014
2016
Note: Survey of businesses in the Sixth Federal Reserve
District. Data begin in February 2012.
Source: Federal Reserve Bank of Atlanta.

Page 24 of 100

2.0

Class II FOMC – Restricted (FR)

September 14, 2016

again at its historical low, while the 3-year-ahead measure of expectations in
the Federal Reserve Bank of New York’s Survey of Consumer Expectations,
at 2.7 percent in August, is close to the average over the first half of the year.
The TIPS-based measure of 5-year-forward inflation compensation is
1.5 percent, up 0.1 percentage point since the time of the July Tealbook.
The outlook for inflation beyond the near term is essentially unrevised from the
July Tealbook. Core PCE price inflation is expected to move up to 1.9 percent by 2019,
primarily reflecting the waning restraint from earlier declines in energy and import prices
along with a further tightening in resource utilization. With consumer food and energy
prices projected to rise roughly in line with core prices after this year, we expect total
PCE price inflation to run close to the same pace as core inflation over the next few years
and to reach 1.9 percent in 2019.


Since the December 2015 Tealbook, our core inflation projection has been
revised up in 2016 largely because of readings in the first couple months of
the year that were higher than we expected. Core inflation has receded over
the past few months, however, and the projections for 2017 and 2018 are little
changed.

The incoming data on hourly labor compensation have been mixed. We expect
compensation per hour to pick up a little over the projection period but anticipate that the
employment cost index (ECI) will remain near its current pace of increase.9


Compensation per hour in the business sector is estimated to have declined at
an annual rate of 1 percent in the first quarter of the year, a notable downward
revision to the estimate we had at the time of the July Tealbook. Data through
July suggest that wage growth has since picked up, and we expect the growth
in compensation per hour to move up from an average pace of about
2½ percent over the past eight quarters to 3¼ percent in 2019.



Over the 12 months ending in June, the ECI for private workers rose
2.4 percent, a pace we expect to continue through the end of the medium term.

Increases in the ECI tend to be much less pro-cyclical than the increases in business-sector
compensation per hour.

Page 25 of 100

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

September 14, 2016

Average hourly earnings of all employees increased less than we expected in
August. Nonetheless, over the 12 months ending in August, this measure rose
about 2½ percent; the 12-month change has been trending modestly upward
since holding roughly steady at around 2 percent from 2012 to late 2014.



An alternative measure of hourly wage growth calculated by the Federal
Reserve Bank of Atlanta, which is more pro-cyclical than average hourly
earnings, has moved up from around 3 percent to 3½ percent over the past
year and a half. However, the pace of increases in this measure remains
below pre-recession levels.10

THE LONG-TERM OUTLOOK


Our assumption regarding the natural rate of unemployment in the longer run
remains at 5.0 percent. The growth rate of potential GDP in the longer run
has been revised down 0.2 percentage point since the July Tealbook to
1.7 percent.



The long-run value of the real federal funds rate has been revised down from
1 percent to ¾ percent since the July Tealbook, which is also reflected in the
long-run value of the 10-year Treasury rate.



We expect that the Federal Reserve’s holdings of securities will continue to
put downward pressure on longer-term interest rates, though to a diminishing
extent over time. The SOMA portfolio is projected to have returned to a
normal size by 2022.



With output running above its potential and inflation at the Committee’s
2 percent objective, the nominal federal funds rate is about ¾ percentage point
above its long-run value of 2¾ percent in 2020 and 2021, then moves back
toward its long-run value thereafter.



As monetary policy continues to tighten, real GDP decelerates further and
rises at an annual rate of 1.4 percent and 1.3 percent in 2020 and 2021,

The Atlanta Fed’s Wage Growth Tracker is calculated using microdata from the Current
Population Survey. It is the 3-month moving average of the median 12-month change in the hourly wage
for all individuals who are employed both in the current month and in the same month one year earlier
(though not necessarily at all times between those two dates or at the same employer).

Page 26 of 100

Class II FOMC – Restricted (FR)

September 14, 2016

respectively. The unemployment rate is 4.3 percent in 2020 and rises
gradually toward its assumed natural rate in subsequent years.


PCE price inflation moves up from 1.9 percent in 2019 to the Committee’s
long-run objective in 2020.

Page 27 of 100

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September 14, 2016

(This page is intentionally blank.)

Page 28 of 100

Authorized for Public Release
September 14, 2016

Domestic Econ Devel & Outlook

Class II FOMC – Restricted (FR)

Projections of Real GDP and Related Components
(Percent change at annual rate from final quarter
of preceding period except as noted)
2016
Measure

2015

2016

2017

2018

2019

2.5
2.0

1.8
1.7

2.4
2.5

2.0
2.1

1.7
1.8

1.9
1.7

2.3
2.1

2.1
1.9

2.3
2.5

2.0
2.3

1.7

2.6
2.7

3.0
2.8

2.6
2.6

2.8
2.7

2.7
2.8

2.5
2.6

2.3

Residential investment
Previous Tealbook

13.1
9.4

-.3
5.6

-3.1
.3

-1.7
2.9

7.5
8.8

4.6
6.4

2.4

Nonresidential structures
Previous Tealbook

-8.8
-3.5

-1.0
-10.5

2.5
1.1

.7
-4.9

.1
2.9

-.3
1.5

-1.1

Equipment and intangibles
Previous Tealbook

3.8
3.0

-2.0
-1.8

4.0
3.7

1.0
.9

3.4
3.8

2.9
3.4

1.9

Federal purchases
Previous Tealbook

1.7
.9

-.9
-1.2

3.0
3.4

1.0
1.1

1.6
1.3

-.5
-.7

-.4

State and local purchases
Previous Tealbook

2.5
1.2

.6
.9

1.7
1.5

1.2
1.2

1.4
1.4

1.2
1.4

1.2

Exports
Previous Tealbook

-2.2
-.6

.5
-.3

2.0
1.9

1.2
.8

2.0
1.9

3.1
3.3

2.8

Imports
Previous Tealbook

2.5
2.9

-.2
-.3

3.5
4.6

1.6
2.1

4.4
4.5

4.1
4.0

4.0

Real GDP
Previous Tealbook
Final sales
Previous Tealbook
Personal consumption expenditures
Previous Tealbook

1.9
2.0

1.1
1.4

2.0
2.0

Contributions to change in real GDP
(percentage points)
Inventory change
Previous Tealbook

-.1
.0

-.8
-.3

.3
-.1

-.3
-.2

.1
.0

.0
-.2

Net exports
Previous Tealbook

-.7
-.5

.1
.0

-.3
-.4

-.1
-.2

-.4
-.4

-.2
-.2

-.3

Real GDP
4-quarter percent change
Current Tealbook
Previous Tealbook

10
8
6
4
2
0
-2
-4

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

Note: The gray shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

Page 29 of 100

2019

-6

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September 14, 2016

Components of Final Demand

Personal Consumption Expenditures
4-quarter percent change

Residential Investment
4-quarter percent change

Current Tealbook
Previous Tealbook

20
15

10
3
5
2
0
1

2012

2013

2014

2015

2016

2017

2018

2019

-5

2012

Equipment and Intangibles

2013

2014

2015

2016

2017

2018

2019

-10

Nonresidential Structures

4-quarter percent change

25
20

10
6
5
4
0
2

-5

0
2012

2013

2014

2015

2016

2017

2018

2019

-10

-2

2012

Government Consumption &
Investment

2013

2014

2015

2016

2017

2018

2019

-15

Exports and Imports

4-quarter percent change

2
1

Exports

-1

-2
-3

0
Imports

-4
2012

2013

2014

2015

2016

2017

2018

2019

-5

2012

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

Page 30 of 100

2013

2014

2015

2016

2017

2018

2019

-5

Class II FOMC – Restricted (FR)

September 14, 2016

Aspects of the Medium-Term Projection
Personal Saving Rate

Wealth-to-Income Ratio
Percent

Current Tealbook
Previous Tealbook

Ratio

6.8

9
6.4
8
6.0

7
6

5.6
5
5.2

4
3

4.8
2
1999
2004
2009
2014
2019
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

1999
2004
2009
2014
2019
Note: Ratio of household net worth to disposable personal
income.
Source: For net worth, Federal Reserve Board, Financial
Accounts of the United States; for income, U.S. Dept. of
Commerce, Bureau of Economic Analysis.

Single-Family Housing Starts

4.4

Equipment and Intangibles Spending
Millions of units

Share of nominal GDP

2.00

1.75
11

1.50
1.25

1.00
9

0.75
0.50

0.25
1999
2004
2009
Source: U.S. Census Bureau.

2014

2019

0.00

Federal Surplus/Deficit

1999
2004
2009
2014
2019
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

Current Account Surplus/Deficit
Share of nominal GDP

Share of nominal GDP

4-quarter moving average
4

-1

-2

-2
-3
-4
-4

-6

-5

-8

-6

-10
1999
2004
2009
Source: Monthly Treasury Statement.

2014

2019

-12

1999
2004
2009
2014
2019
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

Note: The gray shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research.

Page 31 of 100

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September 14, 2016

Decomposition of Potential GDP
(Percent change, Q4 to Q4, except as noted)
Measure

1974-95

Potential real GDP
Previous Tealbook
Selected contributions1
Structural labor productivity2
Previous Tealbook
Capital deepening
Multifactor productivity
Structural hours
Previous Tealbook
Labor force participation
Previous Tealbook
Memo:
GDP gap3
Previous Tealbook

19962000

2001-07 2008-10 2011-15

2016

2017

2018

2019

3.1
3.1

3.4
3.4

2.6
2.6

1.6
1.6

1.1
1.1

1.5
1.6

1.6
1.7

1.7

1.6
1.6
.7
.7
1.6
1.6
.4
.4

2.9
2.9
1.5
1.0
1.2
1.2
-.1
-.1

2.8
2.8
1.0
1.5
.8
.8
-.2
-.2

1.4
1.4
.3
.9
.1
.1
-.5
-.5

.8
.8
.5
.0
.6
.6
-.6
-.6

1.0
1.1
.5
.3
.5
.5
-.5
-.5

1.1
1.2
.5
.4
.4
.4
-.5
-.5

1.1
1.4
.4
.5
.3
.3
-.5
-.5

1.2

-1.9
-1.9

2.4
2.4

.8
.8

-4.2
-4.2

.0
.0

.2
.1

1.1
1.0

1.5
1.4

.4
.7
.3
-.5

Note: For multiyear periods, the percent change is the annual average from Q4 of the year preceding the first year shown to Q4 of the last year
shown.
1. Percentage points.
2. Total business sector.
3. Percent difference between actual and potential GDP in the final quarter of the period indicated. A negative number indicates that the economy
is operating below potential.

GDP Gap

Unemployment Rate
Percent

Current Tealbook
Previous Tealbook

Percent

8
Unemployment rate
Previous Tealbook
Natural rate of unemployment

6
4

14
12
10

0
-2

-4
4

-6
1999
2004
2009
2014
2019
Note: The GDP gap is the percent difference between actual
and potential GDP; a negative number indicates that the
economy is operating below potential.
Source: U.S. Department of Commerce, Bureau of Economic
Analysis; staff assumptions.

-8

(Business sector)

90
Actual
Structural

85
Average rate from
1972 to 2015

Structural and Actual Labor Productivity

Manufacturing Capacity Utilization Rate
Percent

1999
2004
2009
2014
2019
Source: U.S. Department of Labor, Bureau of Labor Statistics;
staff assumptions.

Chained (2009) dollars per hour

66
64
62
60

58
75

56
54

52
50

48
46
2004
2007
2010
2013
2016
2019
Source: U.S. Department of Labor, Bureau of Labor Statistics;
U.S. Department of Commerce, Bureau of Economic Analysis;
staff assumptions.
Note: The gray shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research.

1999
2004
2009
2014
2019
Source: Federal Reserve Board, G.17 Statistical Release,
"Industrial Production and Capacity Utilization."

Page 32 of 100

Class II FOMC – Restricted (FR)

September 14, 2016

The Outlook for the Labor Market
2016
Measure

2015

2016
H1

Output per hour, business1
Previous Tealbook

2017

2018

2019

.5
.7

-.8
.2

1.6
1.2

.4
.7

1.1
1.3

1.2

229
229

171
172

192
165

182
168

186
185

145
144

107

221
221

155
158

169
155

162
157

174
174

133
133

Labor force participation rate3
Previous Tealbook

62.5
62.5

62.7
62.7

62.7
62.6

62.5
62.5

62.2
62.2

61.9

Civilian unemployment rate3
Previous Tealbook

5.0
5.0

4.9
4.9

4.5
4.6

4.3
4.3

4.2
4.3

Nonfarm payroll employment2
Previous Tealbook
Private employment2
Previous Tealbook

1. Percent change from final quarter of preceding period at annual rate.
2. Thousands, average monthly changes.
3. Percent, average for the final quarter in the period.
Source: U.S. Department of Labor, Bureau of Labor Statistics; staff assumptions.

Inflation Projections
(Percent change at annual rate from final quarter of preceding period)
2016
Measure

2015

2016

2017

2018

2019

1.2
1.2

1.2
1.1

1.6
1.7

1.8
1.8

1.9
1.9

-1.7
-1.8

-.3
.6

-1.0
-.6

1.7
1.9

2.2
2.0

2.2

-15.8
-15.1

-10.5
-10.3

2.2
-.4

-4.3
-5.5

2.6
3.4

2.0
1.8

1.7

Excluding food and energy
Previous Tealbook

1.4
1.4

1.9
1.9

1.3
1.3

1.6
1.6

1.8
1.8

1.9
1.9

Prices of core goods imports1
Previous Tealbook

-3.3
-3.4

-.9
-.7

1.5
1.2

.3
.3

.8
1.0

.4
.5

1.1
1.1

Food and beverages
Previous Tealbook

.3
.2

Energy
Previous Tealbook

PCE chain-weighted price index
Previous Tealbook

1. Core goods imports exclude computers, semiconductors, oil, and natural gas.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

Page 33 of 100

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September 14, 2016

Labor Market Developments and Outlook (1)

Measures of Labor Underutilization
Percent
U-5*
Unemployment rate
Part time for
economic reasons**

Percent

Unemployment rate
Previous Tealbook
Natural unemployment rate with EEB adjustment

12
11

8
Aug.

7
6

4
4

3
2002

2004

2006

2008

2010

2012

2014

2016

2012

2013

2014

2015

2016

2017

2018

2019

* U-5 measures total unemployed persons plus all marginally attached to the labor force, as a percent of the labor force plus persons marginally
attached to the labor force.
** Percent of Current Population Survey employment.
EEB Extended and emergency unemployment benefits.
Source: U.S. Department of Labor, Bureau of Labor Statistics.

Level of Payroll Employment*
125

Millions

Millions
Total (right axis)
Private (left axis)

Millions

145
Total
Previous Tealbook

Aug.

120

140

115

135

152
150
148
146
144
142
140

110

130

105

125

138
136
134

2002 2004 2006 2008 2010 2012 2014 2016
* 3-month moving averages.
Source: U.S. Department of Labor, Bureau of Labor Statistics.

2012

2013

2014

2015

2016

2017

2018

2019

132

Change in Payroll Employment*
Thousands

Thousands

400

Total
Previous Tealbook

200
Aug.

Total
Private
2002

2004

2006

2008

2010

2012

2014

2016

350
300
250

-200

200

-400

150

-600

100

-800

-1000

2012

2013

2014

2015

2016

2017

* 3-month moving averages.
Source: U.S. Department of Labor, Bureau of Labor Statistics.

Note: The gray shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research.

Page 34 of 100

2018

2019

Class II FOMC – Restricted (FR)

September 14, 2016

Labor Market Developments and Outlook (2)

Labor Force Participation Rate*
Percent
Labor force participation rate
Estimated trend**

Aug.

2002

2004

2006

2008

2010

2012

2014

2016

Percent

68.0
67.5
67.0
66.5
66.0
65.5
65.0
64.5
64.0
63.5
63.0
62.5
62.0

Labor force participation rate
Previous Tealbook
Estimated trend**

65.0
64.5
64.0
63.5
63.0
62.5
62.0

2012

2013

2014

2015

2016

2017

2018

2019

61.5

* Published data adjusted by staff to account for changes in population weights.
** Includes staff estimate of the effect of extended and emergency unemployment benefits.
Source: U.S. Department of Labor, Bureau of Labor Statistics; staff assumptions.

Initial Unemployment Insurance Claims*
Thousands

Private Hires, Quits, and Job Openings
Percent

700

Hires*
Openings**
Quits*

650
600
550

5.5
5.0
4.5
4.0

500

3.5

450
Sept. 3

2002 2004 2006 2008 2010 2012 2014 2016
* 4-week moving average.
Source: U.S. Department of Labor, Employment and
Training Administration.

3.0

400

July
2.5

350
300

2.0

250

1.5

200

2002 2004 2006 2008 2010 2012 2014 2016
* Percent of private nonfarm payroll employment, 3-month
moving average.
** Percent of private nonfarm payroll employment plus
unfilled jobs, 3-month moving average.
Source: Job Openings and Labor Turnover Survey.

1.0

Average Monthly Change in Labor Market Conditions Index
Index points

15
10
5
0

Q3*

-5
-10
-15
-20
-25
-30

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

* Value shown for Q3, which is an average of August and July data, is 0.00.
Source: Labor market conditions index estimated by staff.

Note: The gray shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research.

Page 35 of 100

2016

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September 14, 2016

Inflation Developments and Outlook (1)
(Percent change from year-earlier period)

Headline Consumer Price Inflation
Percent
CPI
PCE

Percent

6
PCE - Current Tealbook
PCE - Previous Tealbook

5
4

4
3

3
2

2
1
July
1

0
-1

0
-2
-3
-1
2002 2004 2006 2008 2010 2012 2014 2016
2013 2014 2015 2016 2017 2018 2019
Source: For CPI, U.S. Department of Labor, Bureau of Labor Statistics; for PCE, U.S. Department of Commerce, Bureau of Economic Analysis.

Measures of Underlying PCE Price Inflation
Percent
Trimmed mean PCE
Market-based PCE excluding food and energy
PCE excluding food and energy

Percent

4.0
Core PCE - Current Tealbook
Core PCE - Previous Tealbook

3.5

3.5
3.0

3.0

2.5

2.5
2.0
July

2.0
1.5

1.5

1.0

0.5

0.5
0.0
2013 2014 2015 2016 2017 2018 2019
2002 2004 2006 2008 2010 2012 2014 2016
Source: For trimmed mean PCE, Federal Reserve Bank of Dallas; otherwise, U.S. Department of Commerce, Bureau of Economic Analysis.

0.0

Labor Cost Growth
Percent

Percent

Compensation per hour - Current Tealbook
Compensation per hour - Previous Tealbook

Q2
Aug.

6
5

Q2
Employment cost index
Average hourly earnings
Compensation per hour

2002

2004

2006

2008

2010

2012

2014

2016

-1

2013

2014

2015

2016

2017

2018

2019

Note: Compensation per hour is for the business sector. Average hourly earnings are for the private nonfarm sector. The employment cost
index is for the private sector.
Source: U.S. Department of Labor, Bureau of Labor Statistics.
Note: The gray shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research.

Page 36 of 100

-1

Class II FOMC – Restricted (FR)

September 14, 2016

Inflation Developments and Outlook (2)
(Percent change from year-earlier period, except as noted)

Commodity and Oil Price Levels
Dollars per barrel
1967 = 100
220
Brent crude oil history/futures (right axis)
1680
168
CRB spot commodity price index (left axis)
1420
142
1200
120
1000
100
800
80
2200

600

1000

1967 = 100

Dollars per barrel

Brent crude oil history/futures (right axis)
CRB spot commodity price index (left axis)

900

160
140

800

120

700

100

600

80
Sept. 13

400

200

Sept. 13

500

400

20
300
20
2013
2014
2015
2016
2017
2002 2004 2006 2008 2010 2012 2014 2016
Note: Futures prices (dotted lines) are the latest observations on monthly futures contracts.
Source: For oil prices, U.S. Department of Energy, Energy Information Agency; for commodity prices, Commodity Research Bureau (CRB).

Energy and Import Price Inflation
18

Percent

Percent
PCE energy prices (right axis)
Core import prices (left axis)

Percent

Percent
PCE energy prices (right axis)
Core import prices (left axis)

-2

Aug.

-5

-10

-4

Aug. (e)

-10

-20

-6

-15

-30

-8

-20

-40

-10

-3

Aug.

-6

Aug. (e)

-9
-12

2002

2004

2006

2008

2010

2012

2014

2016

20
15

2013

2014

2015

-25

2016

(e) Estimate.
Source: For core import prices, U.S. Dept. of Labor, Bureau of Labor Statistics; for PCE, U.S. Dept. of Commerce, Bureau of Economic Analysis.

Long-Term Inflation Expectations and Compensation
Percent
5-to-10-year-ahead TIPS compensation
Michigan median next 5 to 10 years
SPF PCE median next 10 years

4.0
3.5
Aug.

Percent

4.5
5-to-10-year-ahead TIPS compensation
Michigan median next 5 to 10 years
SPF PCE median next 10 years

Aug.

4.0
3.5

3.0
2.5

2.0
1.5

4.5

3.0
Aug.
Q3
Aug.

2.5
2.0
1.5

1.0
1.0
2002 2004 2006 2008 2010 2012 2014 2016
2013
2014
2015
2016
Note: Based on a comparison of an estimated TIPS (Treasury Inflation-Protected Securities) yield curve with an estimated nominal off-the-run
Treasury yield curve, with an adjustment for the indexation-lag effect.
SPF Survey of Professional Forecasters.
Source: For Michigan, University of Michigan Surveys of Consumers; for SPF, the Federal Reserve Bank of Philadelphia; for
TIPS, Federal Reserve Board staff calculations.
Note: The gray shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research.

Page 37 of 100

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September 14, 2016

The Long-Term Outlook

(Percent change, Q4 to Q4, except as noted)

Measure

2016

2017

2018

2019

2020

2021

Longer run

Real GDP
Previous Tealbook

1.8
1.7

2.4
2.5

2.0
2.1

1.7
1.8

1.4
1.6

1.3
1.6

1.7
1.9

Civilian unemployment rate1
Previous Tealbook

4.9
4.9

4.5
4.6

4.3
4.3

4.2
4.3

4.3
4.5

4.6
4.7

5.0
5.0

PCE prices, total
Previous Tealbook

1.2
1.1

1.6
1.7

1.8
1.8

1.9
1.9

2.0
2.0

2.1
2.0

2.0
2.0

Core PCE prices
Previous Tealbook

1.6
1.6

1.8
1.8

1.9
1.9

2.0
2.0

2.1
2.0

2.0
2.0

1.50
1.53

2.49
2.54

3.19
3.27

3.52
3.59

3.55
3.63

2.75
3.00

2.4
2.8

2.9
3.3

3.3
3.5

3.4
3.6

3.3
3.6

3.2
3.5

Federal funds rate1
Previous Tealbook

.64
.70

10-year Treasury yield1
Previous Tealbook

1.8
1.9

1. Percent, average for the final quarter of the period.

Real GDP

Unemployment Rate
4-quarter percent change

Potential GDP

Real GDP
2004

2007

2010

2013

2016

2019

Percent
5
4
3
2
1
0
−1
−2
−3
−4
−5

2022

10
Unemployment rate

8
Natural rate
with EEB
adjustment

7
6
5

Natural rate

4
2004

PCE Prices

2007

2010

2013

2016

2019

2022

Interest Rates
4-quarter percent change

Percent
4

10
9
8
7
6
5
4
3
2
1
0

Total PCE prices
10-year Treasury

Triple-B corporate
2
PCE prices
excluding
food and
energy

1
0

Federal
funds rate

−1
2004

2007

2010

2013

2016

2019

2022

2004

2007

2010

2013

2016

2019

2022

Note: In each panel, shading represents the projection period, and dashed lines are the previous Tealbook.
Page 38 of 100

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September 14, 2016

Evolution of the Staff Forecast
Change in Real GDP
Percent, Q4/Q4
4

2015
2016

2014
2017

2
2018
1

3/13 4/24 6/12 7/24 9/11 10/23 12/111/22 3/12 4/23 6/11 7/23 9/10 10/22 12/101/21 3/11 4/22 6/10 7/22 9/9

2013

2014

2015

10/21 12/9 1/20 3/9

4/20 6/8

7/20

9/14

2016

Tealbook publication date

Unemployment Rate
Percent, fourth quarter
8.0
7.5

2014

7.0
6.5
2015

6.0
5.5

2016

5.0

2017

2018

4.5
4.0

3/13 4/24 6/12 7/24 9/11 10/23 12/111/22 3/12 4/23 6/11 7/23 9/10 10/22 12/101/21 3/11 4/22 6/10 7/22 9/9

2013

2014

2015

10/21 12/9 1/20 3/9

4/20 6/8

7/20

9/14

3.5

2016

Tealbook publication date

Change in PCE Prices excluding Food and Energy
Percent, Q4/Q4
2.5

2015

2018

2017

2016

2.0

1.5

2014

1.0

0.5

3/13 4/24 6/12 7/24 9/11 10/23 12/111/22 3/12 4/23 6/11 7/23 9/10 10/22 12/101/21 3/11 4/22 6/10 7/22 9/9

2013

2014

2015

Tealbook publication date

Page 39 of 100

10/21 12/9 1/20 3/9

2016

4/20 6/8

7/20

9/14

0.0

Domestic Econ Devel & Outlook

Authorized for Public Release

Domestic Econ Devel & Outlook

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September 14, 2016

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Page 40 of 100

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September 14, 2016

International Economic Developments and Outlook
Foreign real GDP growth slowed from a 2½ percent pace in the first quarter to
less than 1 percent in the second—its slowest pace since the Global Financial
Crisis (GFC). GDP contracted in both Mexico and Canada—countries that represent
40 percent of our U.S. export-weighted foreign aggregate—as the decline in U.S.
manufacturing production hit economic activity in Mexico and as wildfires disrupted oil
only slightly, to 2¼ percent, from 2½ percent in the first quarter.
We expect foreign growth to bounce back from its second-quarter pothole to
2½ percent in the second half of this year. Oil production recently rebounded in Canada,
and we expect the projected pickup in U.S. manufacturing to support Mexican activity.
Moreover, global financial conditions have improved since the July Tealbook, in part
reflecting early indications that the near-term effects on the United Kingdom and euro
area of the British vote for EU exit, or Brexit, are smaller than feared. However, after
this rebound in the second half, we see little further strengthening, with growth abroad
edging up to a pace of only 2¾ percent, well below its pre-GFC trend. Relative to the
July Tealbook, our projection is up a touch in the advanced foreign economies (AFEs)
and down slightly in the emerging market economies (EMEs).
Aggregate AFE inflation has remained near an annual pace of 1¼ percent in
recent months, while measures of inflation expectations across the AFEs continue to run
at persistently low levels. Moreover, although we lowered our estimates of potential
output growth since the GFC, we still have output gaps closing only slowly in the AFEs,
especially in the euro area. Accordingly, we expect AFE inflation to edge up to just
above 1½ percent over the forecast period. With inflation low and growth tepid,
monetary policy in the AFEs will remain highly accommodative for the duration of the
forecast period.
Expectations that interest rates will be “low for long” in the advanced economies
are already generating financial market responses that could have implications for the
outlook—notably, there has been greater investor interest in EMEs, where equity prices
are generally up, and sovereign and corporate bond spreads are nearing post-GFC lows.
Given already high corporate leverage and slowing trend GDP growth, we do not expect
the favorable financial market developments in EMEs to substantially boost growth in
Page 41 of 100

Int’l Econ Devel & Outlook

production in Canada. Excluding Mexico and Canada, foreign GDP growth declined

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September 14, 2016

these economies. In our baseline, U.S. monetary policy normalization leads to some,
albeit muted, reversal of buoyant EME financial conditions. However, we are still
cognizant of the downside risk that U.S. monetary policy tightening could prove
destabilizing for EMEs, weighing on global growth and leading to a more sizable and
sustained appreciation of the dollar than we are assuming in our baseline projection; we
explore this risk in the “Stronger Dollar” scenario in the Risks and Uncertainty section.
Some other (now familiar) downside risks to the global economy have not gone

Int’l Econ Devel & Outlook

away. Notably, although we continue to project a relatively orderly transition to slower
growth in China, the risk of a financial crisis and severe slowdown remains significant.
In addition, some longer-term risks associated with Brexit also remain, in particular the
risk that other EU countries follow the precedent set by Brexit and, in doing so, prompt a
breakup of the euro area. There are also some upside risks to our foreign growth outlook:
Highly accommodative monetary policies, diminishing fiscal pressure, and ongoing
balance sheet repair could spur faster growth in AFEs, while Latin American countries
could shake off their malaise faster than we currently envision and EMEs more generally
could benefit from easier financial conditions. The implications of this upside are
explored in the “Faster Foreign Growth and Weaker Dollar” scenario in the Risks and
Uncertainty section.

ADVANCED FOREIGN ECONOMIES
•

Canada. Second-quarter GDP growth was negative 1.6 percent, ¾ percentage
point lower than estimated in the July Tealbook, and down from 2.5 percent in
the first quarter. The second-quarter surprise was largely due to a greaterthan-anticipated effect on the energy sector from the May wildfires.
Accordingly, we now expect third-quarter growth to rebound to 3½ percent, as
oil production had already started to recover in June. However, other recent
indicators—such as the manufacturing PMI, which is only modestly
expansionary, and the unemployment rate, which remains at 7 percent—
suggest that the underlying pace of growth is moderate. We thus project that
GDP growth will step down to 2¼ percent in the fourth quarter and remain at
that pace through 2017 before edging down further to a near-potential pace of
1¾ percent by the end of the forecast period. The expansion should be
supported by ongoing accommodative monetary and fiscal policies and a

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September 14, 2016

weak Canadian dollar. In this context, we continue to expect the Bank of
Canada to begin removing monetary accommodation in late 2017.
•

United Kingdom. Real GDP expanded 2.4 percent in the second quarter, up
from 1.8 percent in the previous quarter. Recent indicators—such as retail
sales in July as well as confidence and PMIs through August—suggest that the
U.K. economy showed more resilience than had been anticipated just
following the Brexit referendum. Financial conditions have also been better
the Bank of England (BOE) in early August. Accordingly, we marked up the
outlook for growth almost ½ percentage point through mid-2017 relative to
the July Tealbook. Even so, the surge in political and economic uncertainty
due to the Brexit vote should still exert considerable drag on business
investment and consumer spending. We thus project that GDP growth will
step down to a 1¼ percent pace in the second half of this year before rising
back to 1¾ percent by 2018, supported by accommodative monetary policy
and a reduction in uncertainty as more details are known about the
Brexit process.
Inflation should rise from 0.8 percent in the second quarter to almost
2½ percent by year-end, reflecting the effects of the depreciation of the pound
in the aftermath of the Brexit vote. As these effects wane, inflation should
edge down to 2 percent by 2018. In line with this assessment, the BOE will
look through this surge in inflation, as it has stated. Indeed, the BOE
announced a large stimulus package in August: a 25 basis point reduction in
the policy rate to 0.25 percent; a £60 billion expansion of the asset purchase
scheme for U.K. government bonds, which will increase the stock of BOE
holdings from £375 billion to £435 billion; purchases of up to £10 billion of
U.K. corporate bonds; and a new Term Funding Scheme that provides longterm funding for banks at interest rates close to the policy rate. The BOE also
hinted its readiness to cut its policy rate further by the end of this year.
However, given the improved growth outlook, we assume that the policy rate
will remain unchanged through the forecast period.

•

Euro Area. Real GDP growth slowed from 2.1 percent in the first quarter
to 1.2 percent in the second quarter, in line with our July Tealbook forecast.
The slowdown reflected payback from temporary boosts to growth in the first
Page 43 of 100

Int’l Econ Devel & Outlook

than expected and were likely supported by a stimulus package announced by

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September 14, 2016

quarter, including unusually warm weather that had lifted construction.
Indicators for the current quarter have been mixed. On the negative side,
consumer and business confidence have fallen noticeably, and industrial
production has been weak. On the positive side, PMIs and retail sales have
been more resilient. Overall, the data suggest Brexit-related uncertainty is
weighing on economic activity but by slightly less than we anticipated. In
addition, financial market conditions have improved more quickly than
anticipated. Therefore, we revised up our growth estimates for the second half
of 2016 a touch, to 1¼ percent. We still expect unresolved weaknesses in the
Int’l Econ Devel & Outlook

banking sector and rising anti-EU sentiment to trigger further bouts of
uncertainty and volatility, which will weigh on the recovery. Thus, in spite of
lower financial stress, the forecast beyond the current year is little changed:
We expect GDP growth to increase to 1¾ percent in 2017, supported by
accommodative monetary policy and slightly expansionary fiscal policy, and
to settle at about that pace over the rest of the forecast period. Given the very
subdued inflation outlook, we now believe that the European Central Bank
(ECB) will continue to purchase assets through the end of 2017. However,
because financial stress related to Brexit has moderated, we no longer expect
the ECB to cut its deposit rate further.
•

Japan. Second-quarter growth was 0.7 percent, in line with the July Tealbook
estimate and down from 2.1 percent in the previous quarter. The slowdown
partly reflected the disruptions caused by the earthquake in April, and we
project that GDP growth will pick up to 1 percent in the third quarter.
However, with the manufacturing PMI remaining slightly contractionary, we
continue to expect growth to slow to ¾ percent in the fourth quarter and
remain near that pace over the next couple of years.
At its July meeting, the Bank of Japan (BOJ) disappointed markets by easing
its policy stance only modestly. The BOJ’s September policy meeting will
coincide with the release of a comprehensive assessment of the effectiveness
of its policies. With inflation running close to zero—partly owing to recent
yen appreciation—we assume that the BOJ will moderately increase asset
purchases, but we do not expect any major changes in the BOJ’s monetary
policy strategy. Even so, we continue to see inflation rising to only 1 percent
by late 2018.

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September 14, 2016

EMERGING MARKET ECONOMIES
•

Mexico. Real GDP contracted 0.7 percent in the second quarter following an
expansion of 2 percent in the first. U.S. manufacturing production, which
shrank 1 percent in the second quarter, weighed on Mexican exports.
Furthermore, private consumption declined, and fiscal consolidation efforts
pushed down public-sector investment. We see growth returning to about
2¼ percent in the second half of this year, supported by improving U.S.
with this view, manufacturing PMIs rose in August and labor market
conditions continued to improve amid robust credit growth. Although our
forecast for the second half of the year is down only a touch from the July
Tealbook, the continued disappointing pace of growth, together with greater
expected fiscal consolidation through 2018 and downward revisions to U.S.
manufacturing production, has made us more pessimistic about Mexico’s
medium-term outlook. We now see growth rising only slightly over the
forecast period, reaching 2¾ percent by 2019, supported by some
improvement in external demand over the next two years, and, later in the
period, by diminishing fiscal drag.

•

Brazil. Brazil’s recession deepened in the second quarter, with economic
activity contracting 2.2 percent (somewhat less than we had expected) after a
1.7 percent contraction in the first quarter. Private consumption continued to
decline, and net exports fell. But after 10 consecutive quarters of contraction,
fixed investment finally grew, supported by improving business and consumer
confidence. We expect investment to strengthen further, in part because the
conclusion of impeachment proceedings against President Dilma Rousseff,
which confirmed her removal from office, has reduced political uncertainty.
Still, consumption will likely remain weak amid rising unemployment and
tight credit conditions. Fiscal consolidation is also expected to restrain
growth, given that the government recently succeeded in pushing a bill
through its Congress that limits spending growth at the state level to the rate
of inflation for the next two years. All told, we see the economy climbing out
of recession by the fourth quarter, with growth increasing to a modest
2¼ percent pace by the end of 2019.

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Int’l Econ Devel & Outlook

manufacturing production and rebounding household demand. Consistent

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September 14, 2016

Inflation, although quite elevated at nearly 9 percent on a 12-month basis, fell
substantially in recent quarters and is expected to reach 5½ percent by the end
of next year. We expect that the central bank of Brazil will start easing policy
next year.
•

China. After rising to 7.1 percent in the second quarter, real GDP growth is
expected to slow to 6½ percent in the second half of the year. This forecast is
a touch weaker than in the July Tealbook, as slowing investment growth
suggests that the effects of earlier monetary and fiscal stimulus are tapering

Int’l Econ Devel & Outlook

off a bit more quickly than we had expected. Recent data also show a
significant adjustment under way in heavy industry, likely reflecting the
authorities’ efforts to reduce excess capacity in some sectors of the economy.
Exports, however, have grown briskly in recent months after slumping earlier
in the year, suggesting that the depreciation of the renminbi against the
currencies of China’s trading partners over the past several months may be
having some effect. (As explained in the Domestic Economic Developments
and Outlook section, in light of continued downward pressure on the
renminbi, our forecast now calls for more depreciation of the Chinese
currency.) All told, we expect the Chinese economy to grow 6.7 percent in
2016, within the authorities’ target range of 6½ to 7 percent. Thereafter, we
continue to see growth slowing to 5¾ percent by 2019.
Falling food prices pushed down inflation to an estimated 1½ percent in the
third quarter from 2¼ percent in the second. We expect inflation to rebound
as food prices normalize before it settles at around 2½ percent by early
next year.
•

Other Emerging Asia. We estimate that real GDP growth picked up to
3¾ percent in the second quarter, a bit higher than estimated in the July
Tealbook and up from 2½ percent in the first quarter. The step-up was mainly
driven by a sharp rebound in Hong Kong, led by a resurgence in trade with
China and other emerging Asian countries, following Hong Kong’s surprising
output contraction in the first quarter. For the region as a whole, exports,
export orders, and PMIs—although significantly improved relative to last
year—suggest that growth will edge down to 3½ percent in the current
quarter. We expect growth to move up a bit further to 3¾ percent in 2017,
supported by accommodative policies and strengthening exports.
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September 14, 2016

Int’l Econ Devel & Outlook

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Page 47 of 100

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September 14, 2016

The Foreign GDP Outlook

Int’l Econ Devel & Outlook

Real GDP*

Percent change, annual rate

2016
Q3

1. Total Foreign
Previous Tealbook

1.7
2.1

2.6
2.6

Advanced Foreign Economies
Previous Tealbook
Canada
Euro Area
Japan
United Kingdom

1.1
1.3
0.4
1.6
1.4
2.1

Emerging Market Economies
Previous Tealbook
China
Emerging Asia ex. China
Mexico
Brazil

2.2
2.9
6.8
3.2
0.6
-2.0

3.
4.
5.
6.
7.
8.
9.
10.
11.

2017
Q2

2018

2019

2.4
2.4

2.6
2.7

2.7
2.7

2.6
2.7

2.3
2.1
3.5
1.3
1.0
1.3

1.7
1.7
2.2
1.3
0.8
1.3

2.0
1.9
2.6
1.4
0.8
1.3

2.0
1.9
2.5
1.7
0.8
1.4

1.8
1.8
2.1
1.7
0.7
1.5

1.8
1.8
1.9
1.8
0.8
1.8

1.6
1.6
1.7
1.8
0.0
1.8

2.8
3.0
6.6
3.4
2.2
-1.0

3.1
3.1
6.4
3.5
2.3
0.5

3.3
3.4
6.2
3.8
2.3
1.1

3.3
3.5
6.1
3.8
2.3
1.5

3.4
3.5
6.0
3.8
2.3
1.9

3.4
3.6
5.8
3.8
2.4
2.1

3.5
3.7
5.6
3.7
2.7
2.2

* GDP aggregates weighted by shares of U.S. merchandise exports.

Total Foreign GDP

Foreign GDP
Percent change, annual rate

Percent change, annual rate

5.5

Current
Previous Tealbook

Current
Previous Tealbook
7
4.5

6
Emerging market economies
5

3.5
4

3
2.5
2

1.5

0
Advanced foreign economies
0.5
2011

2013

2015

2017

2019

-1
2011

Page 48 of 100

2013

2015

2017

2019

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September 14, 2016

The Foreign Inflation Outlook

Consumer Prices*

Percent change, annual rate

2016
Q3

2017
Q2

1. Total Foreign
Previous Tealbook

1.8
1.8

2.0
2.5

2.5
2.5

Advanced Foreign Economies
Previous Tealbook
Canada
Euro Area
Japan
United Kingdom

0.4
0.4
1.6
-0.1
-0.5
0.4

1.3
1.4
2.2
1.0
0.2
2.3

1.4
1.5
2.2
1.2
0.3
2.4

1.5
1.5
2.2
1.3
0.3
2.5

Emerging Market Economies
Previous Tealbook
China
Emerging Asia ex. China
Mexico
Brazil

2.8
2.8
2.7
1.6
2.5
9.6

2.5
3.2
1.6
1.2
3.5
7.0

3.4
3.3
3.1
2.9
3.2
6.2

3.2
3.2
2.6
3.2
3.2
5.7

3.
4.
5.
6.
7.
8.
9.
10.
11.

2018

2019

2.5
2.5

2.6
2.6

1.5
1.5
2.2
1.3
0.4
2.4

1.5
1.6
2.0
1.4
0.5
2.2

1.6
1.6
2.0
1.4
0.9
2.0

1.8
1.8
2.0
1.5
2.3
1.9

3.2
3.2
2.5
3.2
3.2
5.4

3.2
3.2
2.5
3.4
3.2
5.0

Int’l Econ Devel & Outlook

* CPI aggregates weighted by shares of U.S. non-oil imports.

Foreign Monetary Policy
AFE Policy Rates

AFE Central Bank Balance Sheets
Percent

Percent of GDP

2.5

EME Policy Rates
Percent

100

14
Brazil

2.0

1.5

10
60
8

Canada

1.0

Japan
China*

40
0.5

United Kingdom

Euro area

6
Mexico

Korea

Japan

0.0
Euro area

United Kingdom
Canada

-0.5
2011

2013

2015

2017

2019

0
2010

2012

2014

Page 49 of 100

2016

0
2011 2013 2015 2017 2019

* 1-year benchmark lending rate.

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September 14, 2016

Recent Foreign Indicators
Nominal Exports

Industrial Production
Jan. 2011 = 100

Jan. 2011 = 100

125

Foreign
AFE*
EME**

120
115

115

110

110
105

105

100
95

100

Int’l Econ Devel & Outlook

90
85
80
2011

2012

2013

2014

2015

2016

* Includes Australia, Canada, euro area, Japan, Sweden, Switzerland, U.K.
** Includes Argentina, Brazil, Chile, Colombia, Hong Kong, India,
Indonesia, Israel, Korea, Malaysia, Mexico, Philippines, Russia,
Singapore, Taiwan, Thailand.

Retail Sales

95
2011

2012

2013

2014

2015

2016

* Includes Canada, euro area, Japan, Sweden, U.K.
** Includes Argentina, Brazil, Chile, China, Colombia, India, Indonesia,
Israel, Korea, Malaysia, Mexico, Philippines, Russia, Singapore,
Taiwan, Thailand.

Employment
12-month percent change

4-quarter percent change

Foreign
AFE*
EME**

5
4

8
6

2
1
0
-2
2011

2012

2013

2014

2015

2016

* Includes Canada, euro area, Japan, Sweden, Switzerland, U.K.
** Includes Brazil, Chile, China, Korea, Mexico, Taiwan.

Headline
Core*

2012

2013

2014

2015

2016

* Includes Australia, Canada, euro area, Japan, Sweden, Switzerland, U.K.
** Includes Brazil, Chile, Colombia, Hong Kong, Israel, Korea, Mexico,
Philippines, Russia, Singapore, Taiwan, Thailand, Turkey.

Consumer Prices: Advanced Foreign Economies
12-month percent change

0
2011

Consumer Prices: Emerging Market Economies
12-month percent change
7
Headline*
Ex. food--Emerging Asia**
6
Ex. food--Latin America**

3.0
2.5

5
2.0

1.5

3
2

1.0

1
0.5

0.0
2011

2012

2013

2014

2015

Note: Includes Canada, euro area, Japan, U.K.
* Excludes all food and energy; staff calculation.
Source: Haver Analytics.

2016

-1
2011

2012

2013

2014

2015

2016

* Includes Brazil, Chile, China, Colombia, Hong Kong, India, Indonesia,
Korea, Malaysia, Mexico, Philippines, Singapore, Taiwan, Thailand.
** Excludes all food; staff calculation. Excludes Argentina and Venezuela.

Page 50 of 100

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September 14, 2016

Evolution of Staff’s International Forecast

Total Foreign GDP
Percent change, Q4/Q4

6
5
4

2018

2019

2017

3
2
1

12/11 1/22
2014

3/12

4/23

6/11

7/23

9/10 10/22 12/10 1/21
2015

3/11

4/22

6/10

7/22

9/9

10/21

12/9

1/20
2016

3/9

4/20

6/8

7/20

9/14

Tealbook publication date

Total Foreign CPI
Percent change, Q4/Q4

4.0
3.5

2017

2016

3.0

2018

2019
2.5
2.0
1.5
1.0
0.5

12/11 1/22
2014

3/12

4/23

6/11

7/23

9/10 10/22 12/10 1/21
2015

3/11

4/22

6/10

7/22

9/9

10/21

12/9

1/20
2016

3/9

4/20

6/8

7/20

9/14

0.0

Tealbook publication date

U.S. Current Account Balance
Percent of GDP

0
-1
-2

2016

-3
2017
2019

-4

2018
-5

12/11 1/22
2014

3/12

4/23

6/11

7/23

9/10 10/22 12/10 1/21
2015

3/11

4/22

6/10

7/22

Tealbook publication date

Page 51 of 100

9/9

10/21

12/9

1/20
2016

3/9

4/20

6/8

7/20

9/14

-6

Int’l Econ Devel & Outlook

2016

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September 14, 2016

Int’l Econ Devel & Outlook

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Page 52 of 100

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September 14, 2016

Financial Developments
Markets were relatively calm for much of the intermeeting period, and asset
prices moved within a fairly narrow range, although volatility increased somewhat in the
last few days of the period as market participants focused on central bank
communications in the United States and abroad. Market expectations for a policy rate
increase by the end of this year rose a bit since the July FOMC meeting, primarily
reflecting Federal Reserve communications that were viewed, on balance, as somewhat
less accommodative than expected. Nominal Treasury yields across the curve edged up.
Concerns over the impending compliance deadline for money market fund (MMF)
reform continued to drive additional net outflows from prime MMFs and put upward
pressure on some term money market rates.


Based on a straight read of market quotes, the probability of an increase in the
target range of the federal funds rate by the end of the year rose to 52 percent,
from 43 percent just prior to the July FOMC meeting. The probability of an
increase at the September meeting declined to 14 percent.
Yields on 2-, 5-, and 10-year nominal Treasury securities increased, on net,
7, 13, and 17 basis points, respectively.



The broad dollar index declined about ½ percent on balance. Long-term
sovereign yields rose about 25 basis points in Japan and 10 basis points in
other AFEs.



Assets under management for prime MMFs dropped $205 billion more over
the intermeeting period, while those for government MMFs increased
$211 billion. Most of the declines in assets at prime funds have occurred at
prime institutional funds, and such funds have also reduced weighted-average
maturities to historically low levels. Interest rate spreads over OIS rates rose
further for LIBOR, CDs, and financial CP at three-month horizons.



Financing conditions for nonfinancial firms remained generally
accommodative, though outstanding C&I loans and CP both declined
somewhat in August.

Page 53 of 100

Financial Developments



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Domestic Developments: Policy Expectations and Treasury Yields
Selected Interest Rates
Percent

Percent

1.3
1.2

June ISM
manufacturing

1.1

July
employment
report

July FOMC
minutes
July retail July
sales
CPI

Dec. 2016
Eurodollar
(left scale)

1.0
0.9

New home
sales

2.2

Chair's
Jackson Hole
speech

August ISM
nonmanufacturing
August
employment
report

July
PCE

2.1
2.0

ECB
meeting

1.9
1.8
1.7
1.6

0.8

1.5

10-year
Treasury yield
(right scale)

0.7
0.6
0.5

Aug. 1

Aug. 4

Aug. 10

1.4
1.3
Aug. 15

Aug. 18

Aug. 23

Aug. 26

Aug. 31

Sept. 5

Sept. 8

Sept. 13

1.2

Note: 5−minute intervals, 8:00 a.m. to 4:00 p.m.
Source: Bloomberg.

Probability Distribution of the Timing of Next Rate
Increase Implied by Federal Funds Futures
Percent
Most recent: September 13, 2016
July FOMC: July 26, 2016

Implied Federal Funds Rate
Percent

2.0

Most recent: September 13, 2016
July FOMC: July 26, 2016

1.5

60
50

1.0

Financial Developments

30
0.5

20
10
Sept. 21

Dec. 14
>= Feb. 1
Nov. 2
2016
2017
Note: Implied by federal funds futures. Assumes that investors expect
the federal funds rate to trade at the expected rate implied by futures
contracts until the next FOMC meeting.
Source: CME Group; Federal Reserve Board staff estimates.

2016

2017

2018

2019

0.0

2020

Note: Path is estimated using overnight index swap quotes with
a spline approach and a term premium of zero basis points.
Source: Bloomberg; Federal Reserve Board staff estimates.

Survey Responses on Target Federal Funds
Rate by Year-End 2016

Treasury Yield Curve

Percent

Most recent: September 13, 2016
July FOMC: July 26, 2016

Most recent: 23 respondents
July FOMC: 23 respondents

4.0
3.5

3.0
2.5

40
2.0
1.5

1.0

<0%

0.00- 0.26- 0.51- 1.01- 1.51- 2.01>=2.51%
0.25% 0.50% 1.00% 1.50% 2.00% 2.50%

0.5

Maturity in years

Note: Unconditional distribution of the federal funds rate.
Source: Desk's primary dealer survey from Sept. 12, 2016.

Note: Smoothed yield curve estimated from off-the-run Treasury
coupon securities. Yields shown are those on notional par Treasury
securities with semiannual coupons.
Source: Federal Reserve Bank of New York; Federal Reserve Board
staff estimates.

Page 54 of 100

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

September 14, 2016

Financing conditions for households continued to be accommodative, on
balance, though mortgage markets remained relatively tight for borrowers
with low credit scores.

POLICY EXPECTATIONS AND ASSET MARKET DEVELOPMENTS
Domestic Developments
Over the intermeeting period, Federal Reserve communications pushed market
expectations for a rate increase this year a bit higher on net. However, domestic
economic data releases appeared to be a little softer, on balance, than investors had
expected. Whereas the data released early in the intermeeting period were seen as mixed,
data released toward the end of the period, particularly the August employment report
and the August ISM surveys, were below expectations. Based on a straight read of
federal funds futures, the probability of an increase in the target range for the federal
funds rate occurring at the September meeting was volatile but ended the period slightly
lower at 14 percent, while the probability of an increase by the end of the year rose to
52 percent. In the medium term, the federal funds rate path implied by a straight read of
market quotes edged up on net. The implied federal funds rates at the end of 2017 and

Consistent with market-based estimates, respondents to the Desk’s September
surveys of primary dealers and market participants assigned a probability of about
15 percent to a rate hike at the September meeting. The median respondent in each
survey continues to expect only one hike in 2016, with respondents generally expecting
the rate hike to occur at the December meeting. The most likely path of the target federal
funds rate in 2017 and 2018 was relatively little changed for the median respondent.
Nominal Treasury yields increased, on net, since the July FOMC meeting, with
yields on 2-, 5-, and 10-year Treasury securities 7, 13, and 17 basis points higher,
respectively.1 Yields moved higher toward the end of the period amid perceptions that
global monetary policy may be less accommodative than expected going forward.
Five-to-ten-year TIPS-based inflation compensation rose 9 basis points but remained near

Since the July FOMC meeting, the Treasury Department auctioned $234 billion of nominal
fixed-rate Treasury securities, $14 billion of Treasury Inflation-Protected Securities, and $28 billion of
2-year Floating Rate Notes.

Page 55 of 100

Financial Developments

2018 increased 6 and 7 basis points, respectively.

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September 14, 2016

Domestic Developments: Asset Markets
S&P 500 Stock Price Index

Interest-Rate-Sensitive S&P 500 Sectors

Log scale; July 27, 2016 = 100

July 27, 2016 = 100

Percent

120

130

July
FOMC

Daily

Daily
S&P 500
S&P 500 Bank Index
S&P 500 Utilities Index

110
Sept.
13

July
FOMC

120
110

100

Sept.
13

100
90

80
80
Jan.

May
Sept.
2015

Jan.

May
2016

Sept.

Jan.

Source: Bloomberg.

Implied Volatility on S&P 500 (VIX)

July

Sept.

Basis points
70 320
60
300
50
40 280

July
FOMC

Historical average

May
2016

10-Year Corporate Bond Spreads

Log scale, percent
Daily

Mar.

Basis points
700
July
FOMC

Daily
Triple-B (left scale)
High-yield (right scale)

600

260

550

240

500

Financial Developments

20 220
Sept.
13

650

Sept.
13

200
180
10

Jan.

May
Sept.
2015

Jan.

May
2016

Note: Historical average is taken from 1990 onward.
Source: Chicago Board Options Exchange.

450
400
350

160

300

Sept.

Jan.

May
Sept.
2015

Jan.

May
2016

Sept.

Note: Spreads over 10-year Treasury yield.
Source: Staff estimates of smoothed yield curves based on
Merrill Lynch bond data and smoothed Treasury yield curve.

Page 56 of 100

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September 14, 2016

the lower end of its historical range. Measures of liquidity conditions in the Treasury
market were stable over the intermeeting period.
The S&P 500 stock price index declined 1.9 percent, on net, since the July FOMC
meeting. Stock prices of sectors that benefit from lower interest rates, such as REITs and
utilities, underperformed the broader market, while those of sectors that benefit from
higher interest rates, such as banks, outperformed the broader market. Realized and
implied volatilities in various asset markets were relatively low during most of the
intermeeting period, with the VIX remaining near the lower end of its historical range,
but increased somewhat in the last few days of the period as market participants digested
global central bank communications.
Spreads on yields of nonfinancial corporate bonds over those on comparablematurity Treasury securities declined somewhat to levels fairly close to their historical
norms. Mutual funds that invest in investment-grade corporate bonds experienced
notable inflows in recent weeks.

Foreign Developments
Low volatility also prevailed in international financial markets, and global risk
volatility increased somewhat. Equity prices in the AFEs and EMEs generally rose. In
the EMEs, capital inflows continued, and sovereign and corporate spreads narrowed
further. Consistent with this “risk on” tone in foreign markets, the staff’s broad dollar
index declined about ½ percent, on net, since the July FOMC meeting. European
financial markets remained resilient after the Brexit vote, as downside economic and
financial risks did not materialize. European bank equity prices increased 7 percent, on
balance, and more than retraced their initial declines following the European bank stresstest results but still remained down 25 percent this year.
Investor reaction to news from the ECB and Bank of Japan (BOJ) contributed to
the pickup in volatility at the end of the period. The ECB left rates unchanged at its
September meeting as expected but disappointed some investors by not announcing an
extension of its asset purchase program. Global yields moved higher and the euro
strengthened after the meeting, with German 10-year yields moving back into positive
territory.

Page 57 of 100

Financial Developments

assets broadly appreciated amid improving risk sentiment, although late in the period

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September 14, 2016

Foreign Developments
Equities

Emerging Market Flows and Spreads
July 26, 2016 = 100

Daily

July
FOMC

S&P
Eurostoxx

Basis points
July
FOMC

Weekly

25
120

Nikkei
FTSE

Billions of dollars
Bond flows (left scale)
Equity flows (left scale)

600

Sept.
13

EMBI+
(right scale)

10
100

Sept.
13

400

5
0
200

-5
May
2016

Mar.

July

May

Mar.

July
2016

Sept.

Note: EMBI, emerging market bond spreads over zero-coupon
Treasury securities. Excludes intra-China flows.
Source: Emerging Portfolio Fund Research.

Source: Bloomberg.

Bank Equity Indexes

Dollar Bilateral Exchange Rates
July 26, 2016 = 100
Daily
Dollar
appreciation

July 26, 2016 = 100

120
Daily

July
FOMC

115

Sept.
13

AFE

Euro
area

Sept.
13

Japan

100

95
Pound

United
Kingdom

90
85
May
2016

July

80
Mar.

Sept.

May

July

Sept.

2016
Source: Bloomberg.

Source: Federal Reserve Board; Bloomberg.

10-Year Sovereign Yields

Policy Expectations
Percent

Daily

120

105

EME

Mar.

140

July
FOMC

110

Yen

Financial Developments

Sept.

Percent

3.0
Daily

July
FOMC

2.5

United
States

1.5

United
States

2.0

1.0

1.5
Sept.
13

United
Kingdom

Japan

0.0

-0.5

Euro
area

Japan

-0.5
Mar.
Source: Bloomberg.

May
2016

July

0.5
0.0

0.5

Germany

Sept.
13

United
Kingdom

1.0

-1.0

Sept.

Mar.

May

July

Sept.

2016
Note: 3-day moving average of 1-month OIS rates, 24 months ahead.
Source: Bloomberg.

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September 14, 2016

At its July meeting, the BOJ announced easing measures that left investors
underwhelmed, causing the yen to appreciate and bond yields to jump. The BOJ left its
deposit rate unchanged and chose only to expand its purchases of exchange-traded stock
funds. The BOJ also established a facility to lend Japanese sovereign bonds for use as
collateral at the BOJ’s swap-related dollar funding operations to counter potential dollar
funding pressures in Japan and address possible stigma concerns. In subsequent days, the
BOJ’s asset purchases were also more concentrated than had been expected on the short
end of the maturity spectrum, prompting a further increase in longer-term yields. Over
the period, long-term Japanese yields were up about 25 basis points, while the yen
appreciated about 2½ percent against the dollar.
In contrast, at its early August meeting, the Bank of England announced a rate cut
of 25 basis points to 0.25 percent, a resumption of its asset purchase program, and a new
bank funding program. Long-term yields and the pound fell immediately following the
announcement but retraced on the back of positive economic data later in the period.

Short-Term Funding Markets and Federal Reserve Operations
MMF reform, intended to make the MMF industry more resilient, continued to
affect several short-term funding markets in advance of the October 14, 2016, compliance
of MMFs changed little over the intermeeting period, investors continued to shift from
prime funds to government funds.3 As a result, MMF holdings of CP and CDs continued
to decline. Indeed, net fractions of about one-fourth and two-fifths of the September
SCOOS respondents reported a decrease in the use of CDs and CP, respectively, pointing
to MMF reform as a somewhat important factor driving the decline.4 Most of them also
expected higher rates on CDs, CP, and repo collateralized by non-Treasury or agency
securities during the remainder of the year, resulting from MMF reform. In addition, in
anticipation of more large outflows before the compliance date, prime institutional funds
further reduced their weighted-average maturities to a historically low level of 12 days,
relative to an average of about 40 days over the past few years.
2

The reform imposes floating NAVs (net asset values) for institutional prime funds and municipal
funds and permits liquidity fees and redemption gates for all nongovernment funds.
3
The drop in assets under management for prime MMFs was steep, with $205 billion this
intermeeting period, compared with the decline of $120 billion over the previous intermeeting period.
4
The respondents indicated that funding for CDs increased from corporations, foreign banking
organizations, and other lenders.

Page 59 of 100

Financial Developments

deadline for a number of substantive reforms.2 While total assets under the management

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September 14, 2016

Short−Term Funding Markets and Federal Reserve Operations
Prime and Government MMF Assets under
Management

MMF Weighted−Average Maturity
Days

Billions of dollars

2000

2000 75

July
FOMC

Weekly

Weekly
Prime institutional
Prime retail
Government

Ex. conversions
Prime

1500

July
FOMC

1500

Sept.
6

50
Sept.
7

1000
Government

1000
25

500

0
Sept. Jan.
2014

May Sept.
2015

Jan.

May
2016

Sept.

Sept. Jan.
2014

May Sept.
2015

Jan.

May
2016

Sept.

Note: Conversions include fund closures. MMF is money market
fund.
Source: Calculations by the Federal Reserve Board based on
data from the Investment Company Institute.

Note: All statistics are computed on an asset−weighted basis.
MMF is money market fund.
Source: iMoneyNet.

CD Spreads over OIS

LIBOR−OIS Spreads
Basis points

Sept.
13

90 days
60 days
30 days
7 days

Basis points

July
FOMC

Daily*

Financial Developments

Ex. conversions

500

−10

−10
Jan.
2015

Mar.

May
2016

July

Sept.

July
FOMC

Daily
3−month
1−month

50
40
30
Sept.
13

0
Nov.
2015

Jan.

Mar.

May
2016

July

Sept.

Note: The CD yield refers to the respective point on the yield curve.
CD is certificate of deposit; OIS is overnight index swap.
* 5−day moving averages.
Source: Depository Trust & Clearing Corporation.

Note: LIBOR is London interbank offered rate; OIS is overnight
index swap.
Source: Bloomberg.

ON RRP Take−Up, by Type

Selected Overnight Money Market Rates
Basis points

Billions of dollars
Daily
Gov’t MMFs
Prime MMFs
Other

Sept.
13

Nov.
2015

Jan.

Mar.

May
2016

July

Sept.

500
450
400
350
300
250
200
150
100
50
0

Note: ON RRP is overnight reverse repurchase agreement; MMFs are
money market funds.
Source: Federal Reserve Bank of New York.

Daily
July
FOMC

GCF Treasury repo
ON RRP
Federal funds
Eurodollar
Triparty Treasury repo
IOER rate

Nov.
2015

Jan.

Mar.

Sept.
13

May
2016

July

130
120
110
100
90
80
70
60
50
40
30
20
10
0

Sept.

Note: Triparty Treasury repo (repurchase agreement) data
as of September 8, 2016. GCF is General Collateral Finance;
ON RRP is overnight reverse repurchase agreement; IOER is
interest on excess reserves.
Source: Depository Trust & Clearing Corporation; Federal Reserve
Bank of New York; Federal Reserve Board.

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Reflecting MMFs’ reduced appetite for term lending, spreads over OIS of longerterm money market rates—including LIBOR, CDs, and financial CP at three-month
horizons—were higher during the intermeeting period.5 Short-term municipal rates and
tax-exempt money funds’ net yields also increased sharply, primarily because of outflows
from these funds. These increases in spreads, particularly those resulting from a rise in
LIBOR, which serves as a reference rate for trillions of dollars in adjustable-rate loans,
will likely increase the financing costs for some nonfinancial firms (for more details, see
the box “Floating-Rate Debt of Nonfinancial Corporations”).6
MMF reform also has affected the banking sector. Higher CD rates and LIBOR
may not only increase funding costs for some banks, but also boost revenues from
floating-rate loans (for additional information, see the box “Some Effects of Money
Market Reform on U.S. Banks”). Foreign banks faced increased dollar funding costs
associated with the new rules, as MMFs reduced their holdings of unsecured debt issued
by foreign banks. Japanese banks experienced the largest decreases in unsecured debt,
close to $30 billion—or 20 percent of their unsecured debt—over the past three months.
Foreign banks’ three-month CD spreads over OIS and the three-month dollar–yen FX
swap basis rose modestly, although the one-month dollar–yen FX swap basis rose more

Reflecting the increased flows into government money funds, average daily
ON RRP usage by such money funds increased modestly compared with the previous
intermeeting period. Daily take-up of ON RRPs by government money funds was more
volatile this intermeeting period, as these funds reportedly put cash inflows into the
ON RRP initially before shifting some of this new cash back into market instruments.
Overall, ON RRP take-up increased slightly, averaging just under $80 billion, excluding
month-ends.7
MMF reform, however, has yet to materially affect overnight rates. The
overnight triparty repo rate for Treasury collateral stayed above the Federal Reserve’s
ON RRP offering rate of 25 basis points over the intermeeting period. The effective

Nonfinancial CP spreads remained low.
The median respondent in the September Desk surveys predicted the three-month LIBOR–OIS
spread to be 40 basis points after the October 14 deadline, about the same as that implied by market quotes.
7
The Desk reinvested $19 billion of maturing Treasury securities, purchased $50 billion of
15- and 30-year MBS under the reinvestment program, and did not roll any expected MBS settlements over
the intermeeting period.
6

Page 61 of 100

Financial Developments

steeply.

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September 14, 2016

Floating-Rate Debt of Nonfinancial Corporations
The increase in the three-month London interbank offered rate (LIBOR) since midJune has raised concerns about a potential increase in borrowing costs for
nonfinancial corporations. The table below shows these corporations have roughly
$2 trillion of outstanding debt with rates linked to LIBOR, about one-fourth of these
firms’ $7.5 trillion in total debt outstanding. We consider how the prevalence of
interest rate floors, infrequent resetting of rates, and the hedging behavior of firms
limits the increase in interest costs for nonfinancial borrowers as a result of an
upward shift in LIBOR. We conclude by providing an estimate of the increase in
interest costs under different LIBOR scenarios. 1
Although the vast majority of outstanding corporate bonds have fixed interest rates,
we estimate that 75 percent of corporate loans have floating rates that typically
reference three-month LIBOR. 2 Of corporate loans benchmarked to LIBOR, about
two-thirds ($1.4 trillion) are term loans. Almost all term loans have LIBOR floors,
which stipulate the minimum level for the reference rate and thus eliminate
variability in interest payments when the reference rate is below the floor. 3 The
median interest rate floor for term loans is currently 1 percent, while LIBOR is
currently about 85 basis points. Additionally, the floating rate that determines a
loan’s interest rate is customarily reset quarterly. Both factors are likely to soften the
reaction of interest expense to changes in LIBOR.

Financial Developments

The remaining one-third of floating-rate loans are revolving lines of credit. Borrowers
incur interest costs only when they draw on the credit facility. 4 Although lines of
Total Nonfinancial Corporate Debt
Total Debt
Bonds

Loans
Revolving Lines Of Credit
Term Loans

4950
2590

Total LIBOR
Floating Rate Debt

% "4th Floors

Median LIBOR Floor

67%
22%
86%

0bps
100 bps

98
1979
564
1362

Note: The median LIBOR floor for loans is calculated by finding the median value of the in terest rate floor for loans in either category,
where loans with no interest ra te floor are assigned a floor value of zero. Al l numbers are in billions of dollars.
Source : Y14Q Regulatory Reporting: Bloomberg: S&P LCD: Z-1 Financial Accounts of the United States.

This analysis draws on regulatory loan-level data in the Y-14 for a large subset (about
80 percent of the universe) of floating-rate corporate loans. The breakdown of interest rate floor
and rate reset timing characteristics from this sample of loans is extrapolated to the universe of
nonfinancial corporate loans in the Z1 Financial Accounts. See “Some Effects of Money Market
Reform on U.S. Banks” for a discussion of how these loans affect bank profitability.
2 For more details on the effect of increases in interest rates on corporate bonds, see Richard
Ogden, Francisco Palomino, Nitish Sinha, and Youngsuk Yook (2016), “Corporate Bond Issuers’
Swap Exposure to Rising Interest Rates,” FEDS Notes (Washington: Board of Governors of the
Federal Reserve System, May 26), https://www.federalreserve.gov/econresdata/notes/fedsnotes/2016/corporate-bond-issuers-swap-exposure-to-rising-interest-rates-20160526.html.
3 Recall that the interest rate on floating-rate loans includes both LIBOR and a constant spread;
the floor described here applies only to the LIBOR component.
4 In aggregate, nonfinancial corporate borrowers have only used $564 billion of $2 trillion
committed as revolving lines of credit.

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September 14, 2016

credit do not typically have interest rate floors, they do typically reset the level of
their reference rate quarterly, similar to term loans. This factor tends to weaken the
reaction of interest expense to changes in LIBOR.
The figure below shows estimates of the additional interest expense from loans for
nonfinancial borrowers given different increases in LIBOR, taking into account the
effect of interest rate floors. We consider four scenarios, including the current
20 basis point increase since mid-June (Scenario 1 in the figure) as well as three larger
increases in three-month LIBOR, up to 80 basis points (Scenario 4). This exercise
assumes that the increase in LIBOR persists for one year and that loan reference
rates reset instantaneously. As such, this estimate provides an upper bound of
additional interest expense for nonfinancial borrowers.

Finally, these calculations do not take into account some firms’ use of derivatives to
hedge interest rate risk, which could further limit the effect of higher interest rates
on their net interest expenses. 6 However, in recent years corporations do not
appear to be actively engaged in interest rate hedging. In fiscal year 2015, we
estimate only around 15 percent of nonfinancial corporations were actively hedging
interest rate risk. 7

5 This percentage is the combined total for both categories of loans discussed in the table:

revolving lines of credit and term loans.
6 The increase in net interest expense may also be offset by returns from investments the
company has made in short-term instruments, which we have not taken into account.
7 This estimate is based on a textual analysis of 10-K filings to the SEC by nonfinancial
corporations with outstanding bank debt.

Page 63 of 100

Financial Developments

We estimate the increase of LIBOR in Scenario 1 (+20 basis points) causes 62 percent
of outstanding loans to adjust to the prevailing value of three-month LIBOR.5
Further, almost all loans will adjust their LIBOR component to the prevailing rate if
LIBOR was to move above 100 basis points (Scenario 2). Nonetheless, the additional
interest expense of even an 80 basis point increase in LIBOR relative to its value in
mid-June (Scenario 4) would equal about $12 billion, which is less than 1 percent of
earnings of nonfinancial corporations (shown by the black line). Quarterly resetting
of interest rates further damps these estimates of the interest expense.

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September 14, 2016

Some Effects of Money Market Reform on U.S. Banks
This discussion examines three ways in which U.S. banks might be affected by money market
fund (MMF) reform: the ability to raise funds through negotiable certificates of deposit
(CDs); the reallocation of funds by investors from money funds into bank deposits; and
upward repricing of bank loans, given increases in short-term rates, such as LIBOR (London
interbank offered rate).

Financial Developments

As the money fund industry’s demand for very short-term investments has increased and its
demand for longer-term private securities has decreased, 60- and 90-day CD yields have risen
relative to OIS (overnight index swap) rates, suggesting that some banks are paying more to
obtain funding at those terms. Even with the higher yields, outflows of large time deposits
have occurred in July and August, largely at U.S. branches and agencies of foreign banks
(figure 1). These branches and agencies, which depend on large time deposits for about
30 percent of their funding, have responded since June by raising funds through borrowed
money, such as fed funds and repo. In contrast to the experience of foreign banks, large time
deposits have been mostly stable at domestic banks, which raise about 7 percent of their
funds through such deposits. However, data on the eight LISCC (Large Institution
Supervision Coordinating Committee) banks show a noticeable decline since mid-August in
outstanding negotiable CDs—that is, wholesale CDs held by institutional investors such as
MMFs and that account for about 1 percent of LISCC banks’ liabilities. Nevertheless, the
LISCC banks have not significantly altered the maturity composition of their negotiable CDs,
as the weighted-average maturity of these CDs has fluctuated in a range from 100 to 120 days
in recent months (even as the weighted-average maturity of prime MMF holdings has
decreased substantially).
U.S. banks appear to be receiving stepped-up inflows of other types of deposits. Figure 1
shows that banks received a net inflow of about $115 billion in core deposits in August, the
highest monthly increase at banks in the past five years. Some of these inflows may be
reallocations of investments away from prime funds, although to date, government funds
appear to have been the main recipients of such outflows. Figure 2 shows that the eight
LISCC banks have received steady net inflows from nonfinancial businesses in particular,

Note: Core deposits comprise all deposits except large
time deposits.
Source: Federal Reserve Board, Form FR 2644, Weekly
Report of Selected Assets and Liabilities of Domestically
Chartered Commercial Banks and U.S. Branches and Agencies
of Foreign Banks.

Source: Federal Reserve Board, Form FR 2052a, Complex
Institution Liquidity Monitoring Report.

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September 14, 2016

while deposits from “nonsupervised financial entities”—including mutual funds—have been
roughly flat in the past two months. Overall, the deposit inflows have been relatively small
compared with the decline of several hundred billion dollars in assets under management at
prime money funds over the past year. In addition, whether these deposits will stay in the
banking system is unclear. Investors will likely take some time to reach a new equilibrium
allocation of their liquid assets.

In summary, as the cost of term funding via CDs has increased, declines in CD funding in the
U.S. banking system to date have been largely confined to branches and agencies of foreign
banks. Domestic banks have received stepped-up inflows of other deposits. Many banks are
positioned to benefit from increased revenue from existing loans on their balance sheets
should the recent rise in LIBOR persist. Looking forward, further reallocation of investments
out of prime funds is expected to occur as additional fund conversions are pending . Whether
such outflows will continue to have relatively small effects on U.S. banks will depend on the
magnitude and the timing of those withdrawals and also on the extent to which investors
decide to abruptly pull out of prime money funds instead of more smoothly reallocating their
investments over time or even staying put. 1
Interest Rate Characteristics of Large Banks’ Business Loans
Type
Fixed
Floating
LIBOR
Prime
Other
Mixed
Total

C&I
214.5
1,008.7
769.1
78.4
161.2
81.5
1,304.7

CRE
158.4
481.0
423.3
26.3
31.3
15.0
654.4

Other
246.4
537.6
420.5
24.2
92.9
49.4
833.4

Total
619.3
2,027.3
1,612.9
128.9
285.4
145.9
2,792.5

Percent
22.2
72.6
57.8
4.6
10.2
5.2
100.0

Note: Amounts in billions of dollars, as of June 30, 2016.
Source: Federal Reserve Board, Form FR Y-14Q, Capital Assessments and Stress Testing (data on Corporate and
Commercial Real Estate Loans).

The median primary dealer survey respondent expects the three-month LIBOR-OIS spread to be
45 basis points, near its current level, in the week prior to October 14, 2016, suggesting that funding
pressures associated with prime money fund outflows may not worsen significantly prior to the
compliance date. Market quotes suggest that the spread will also remain at a similar level after
October 14.

Page 65 of 100

Financial Developments

Some bank loan rates may reprice higher in response to the 20 basis point increase in the
three-month LIBOR since June, as many loan rates are set as spreads over LIBOR. The table
below shows that LIBOR is used as a reference rate for about 60 percent of large banks’
business loans, which we focus on because they tend to reset more frequently than
household loans. Rising loan rates could buoy bank profitability given sticky deposit pricing
but would also represent a tightening of financial conditions for borrowers. The extent to
which bank loan rates move up depends on the specific reference rate, the duration of the
rise in rates, how frequently the loan rates reprice, and the extent to which interest rate
floors are binding. Such calculations and the potential effect on nonfinancial corporations
are explored further in the Financial Developments box “Floating Rate Debt of Nonfinancial
Corporations.”

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Business and Municipal Finance
Selected Components of Net Debt Financing,
Nonfinancial Firms

Nonfinancial Rating Changes, by Sector

Billions of dollars

Percent of outstanding*
120

Monthly rate
Commercial paper
C&I loans*
Institutional leveraged loans
Bonds
Total

60
Annual rate

100

Upgrades

60
Q2

Aug.

Energy
Ex. energy

July

Q1 Q2 Aug.

July

-20

0
Downgrades

-20

Ex. energy
Energy

-40

-40
2012

2014

2016

-60
2001

2004

2007

2010

2013

2016

Note: C&I is commercial and industrial.
* Period-end basis, seasonally adjusted.
Source: Depository Trust & Clearing Corporation; Mergent
Fixed Income Securities Database; Federal Reserve Board;
Thomson Reuters LPC.

* Computed as a percent of nonfinancial bonds outstanding.
Source: Staff calculations using Moody's ratings from Mergent
Fixed Income Securities Database.

Expected Nonfinancial Year-Ahead Defaults

CMBS Issuance

Percent

Billions of dollars
7

Monthly

320
Annual rate

All firms
Oil firms
Non-oil firms

280

Multifamily
Nonresidential

Sept.p

240

200

160

2
1

Financial Developments

July
Aug.

Q1
Q2

120
80
40
0

1996

2000

2004

2008

2012

2016

2007

Note: Firm-level estimates of default weighted by firm liabilities
as a percent of total liabilities, excluding defaulted firms.
p Preliminary.
Source: Calculated using firm-level data from Moody's KMV.

2009

2011

2013

2015

2016

Note: Multifamily excludes agency issuance.
Source: Consumer Mortgage Alert.

Commercial Real Estate Loans

Municipal Bond Ratio
Billions of dollars

Monthly rate
Construction and land development
Multifamily
Nonfarm nonresidential
Q1
H2

July
Q2 Aug.

2006

2008

2010

2012

2014

Ratio
40
35
30
25
20
15
10
5
0
-5
-10
-15
-20

Sept.
8

2016

2011

Note: Data are seasonally adjusted.
Source: Federal Reserve Board, Form FR 2644, Weekly Report
of Selected Assets and Liabilities of Domestically Chartered
Commercial Banks and U.S. Branches and Agencies of Foreign
Banks.

July
FOMC

Weekly

2012

2013

2014

2015

2016

Note: Bond Buyer general obligation 20-year index over 20-year
Treasury yields.
Source: Bond Buyer; Merrill Lynch.

Page 66 of 100

2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9

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federal funds and Eurodollar rates continued to trade within the target range, both
averaging about 40 basis points.

FINANCING CONDITIONS FOR BUSINESSES, MUNICIPALITIES,
AND HOUSEHOLDS
Business and Municipal Finance
Financing conditions for nonfinancial firms remained generally accommodative.
While aggregate C&I loan balances and CP outstanding at nonfinancial firms both
declined somewhat, gross issuance of corporate bonds was quite brisk in August, bucking
the seasonal trend of slow issuance in the summer months. Corporations issued equity
through seasoned offerings at a somewhat faster pace than that observed over the past
few years. In contrast, equity issuance through initial public offerings remained subdued,
and share repurchase volumes slowed.
The credit quality of nonfinancial corporations, which had deteriorated a bit over
the past few quarters, showed signs of stabilization in the current intermeeting period.
The volume of corporate bond upgrades slightly outpaced that of downgrades in August.
Further, both the six-month trailing bond default rate and the KMV expected year-ahead
ranges in recent years. Projections by Wall Street analysts for year-ahead earnings for
S&P 500 companies, which had been lowered significantly early in the year, were little
changed over the intermeeting period.
Financing conditions in commercial real estate (CRE) markets remained
accommodative. CMBS issuance picked up in August, likely reflecting the narrowing of
CMBS spreads—albeit to still wider-than-typical levels—over the past few months.
Growth in CRE loans at banks continued to be strong.
Credit conditions in municipal bond markets also remained accommodative.
Gross issuance of municipal bonds in July and August was strong, and credit quality
remained stable. On net, yields on general obligation bonds edged down, while those on
comparable-maturity Treasury securities moved up, leaving their ratios a touch lower on
net. On August 1, Puerto Rico missed a small amount of debt payments, though prices of
Puerto Rico’s benchmark general obligation bonds were roughly unchanged over the
intermeeting period.

Page 67 of 100

Financial Developments

default measure edged down, although they remained elevated compared with their

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Household Finance
Mortgage Rate and MBS Yield

Prepayment Rate
Percent

Daily

July
FOMC

30-year conforming
fixed mortgage rate

Sept.
13

MBS yield

2012

2013

2014

2015

Percent
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5

Freddie Mac
Fannie Mae
Ginnie Mae

35
30
25
Aug.

10
5
0
2012

Note: The MBS yield is the Fannie Mae 30-year
current-coupon rate.
Source: For MBS yield, Barclays; for mortgage rate,
Loansifter.

2013

2014

2015

2016

Source: eMBS.

Consumer Credit
Percent

Percent change from a year earlier
18

July

Monthly

16
14

24
18

Student loans

12
10

Credit cards (offer rate)

12
July

8
New auto loans (transaction rate)

Financial Developments

Sept.
4

6
4

2008

2010

2012

2014

0
-6

2016

2008

1.2

2010

2012

2014

2016

Note: The data are not seasonally adjusted.
Source: Federal Reserve Board.

Delinquencies on Prime Mortgages

Delinquencies on Consumer Loans

Percent of loans

Monthly

Delinquency
transition rate
(left scale)

Percent of loans
14

Quarterly
7

1.6
1.4

-12

Credit cards

Note: Spreads are relative to 2-year Treasury yield. For
credit cards, the data are monthly; for auto loans, the data are
weekly.
Source: For credit cards, Mintel; for auto loans, PIN.

1.8

Credit cards
at commercial
banks (left scale)

12
11

4
1.0

0.8

July

Delinquency rate
(right scale)

0.6

Auto loans
(left scale)

Student loans
(right scale)

0
2004

2007

2010

2013

10
9

1
2016

Note: For delinquency rate, percent of loans 90 or more
days past due or in foreclosure. For transition rate, percent of
previously current mortgages that transition to being at least
30 days delinquent each month.
Source: LPS Applied Analytics/Black Knight.

Auto loans

0
2006

20
15

2016

Spread of Consumer Interest Rates
to Treasury Yield

Monthly

1998

2001

2004

2007

2010

2013

2016

Note: For credit cards and auto loans, percent of loans 30
or more days past due, excluding severe derogatory loans.
For student loans, percent of loans 90 or more days past due,
including severe derogatory loans. The data for credit cards
and auto loans are seasonally adjusted.
* Denotes change in methodology.
Source: Call Reports; Federal Reserve Bank of New York
Consumer Credit Panel/Equifax.

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September 14, 2016

Household Finance
Financing conditions in the residential mortgage and consumer credit markets
were broadly unchanged over the intermeeting period and remained accommodative on
balance. The interest rate on 30-year fixed-rate mortgages moved higher, in line with
comparable-maturity Treasury yields, but remained at a low level of about 3.4 percent.
Refinancing activity in August was the highest in three years, reflecting low mortgage
rates during June and July. Interest rates on consumer loans, such as variable-rate credit
cards and new auto loans, were also little changed. Consumer loan balances stood
6.5 percent higher in July than a year earlier. Auto and student loan originations
remained solid, though the rate of growth of student loans trended down further. Credit
card balances continued to expand at a robust pace.
Household delinquency rates were generally little changed across loan categories.
Mortgage delinquency rates continued to decline, reflecting in part the relatively tight
mortgage underwriting conditions for less creditworthy borrowers over the past several
years, continued solid house price gains, and improved economic fundamentals. Credit
card delinquency rates remained near historically low levels, while student loan
delinquency rates were little changed at elevated levels. Auto loan delinquency rates,
however, continued to edge up, partly as a result of the broad availability of auto loans to
Financial Developments

subprime borrowers.

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Financial Developments

(This page is intentionally blank.)

Page 70 of 100

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September 14, 2016

Risks and Uncertainty
ASSESSMENT OF RISKS
We continue to view the uncertainty around our projections for real GDP growth
and the unemployment rate as broadly in line with the average over the past 20 years (the
benchmark used by the FOMC). We have maintained our assumption that the risks to our
GDP projection are tilted to the downside, importantly because both monetary and fiscal
policy appear to be better positioned to offset large positive shocks than substantial
adverse ones. Foreign developments and prospects also pose some downside risk to the
U.S. economy. Although near-term concerns associated with Brexit have diminished,
downside risks to the global economy remain. Notably, the transition to slower growth in
the Chinese economy could turn into a severe slowdown. Moreover, in the event of
adverse developments, foreign authorities would likely face similar constraints in
providing policy stimulus as in the United States. We view the risks around our
unemployment rate projection as aligned with those for GDP and, therefore, as tilted to
the upside.
With regard to inflation, we see considerable uncertainty around our projection,
but we do not view the current level of uncertainty as unusually high. At the same time,
we continue to view the risks around our inflation projection as tilted somewhat to the
downside. Market-based measures of inflation compensation remain very low, as do
some survey-based measures of longer-term inflation expectations. In addition, the
realization of the downside risks to economies abroad could put upward pressure on the
foreign exchange value of the dollar, thereby depressing U.S. import prices and inflation.

ALTERNATIVE SCENARIOS
To illustrate some of the risks to the outlook, we construct six alternatives to the
baseline projection using simulations of staff models. The first scenario explores the
term rates fail to increase despite the rising policy rate featured in the baseline—a repeat
of the phenomenon sometimes referred to as the “Greenspan conundrum.” The third
scenario explores the effects of continued subdued labor productivity growth over the
next two years. By contrast, in the fourth scenario, productivity growth is permanently
faster than in the baseline. The fifth scenario considers the possibility that ongoing U.S.
policy normalization leads to a stronger appreciation of the dollar, while the sixth and
Page 71 of 100

Risks & Uncertainty

consequences of continued restraint in business investment. In the second scenario, long-

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Alternative Scenarios
(Percent change, annual rate, from end of preceding period except as noted)

2016
Measure and scenario

Risks & Uncertainty

2017 2018 2019 202021

Real GDP
Extended Tealbook baseline
Weak business investment
A return to the Greenspan conundrum
Temporarily weaker productivity
Permanently stronger productivity
Stronger dollar
Faster foreign growth and weaker dollar

1.1
1.1
1.1
1.1
1.1
1.1
1.1

2.5
1.8
2.5
1.7
2.4
2.5
2.7

2.4
1.9
2.8
2.0
2.7
1.7
2.8

2.0
1.6
2.9
1.6
2.3
1.5
2.3

1.7
1.7
2.4
1.4
2.1
1.8
1.7

1.3
1.5
1.1
1.0
1.8
1.5
1.1

Unemployment rate1
Extended Tealbook baseline
Weak business investment
A return to the Greenspan conundrum
Temporarily weaker productivity
Permanently stronger productivity
Stronger dollar
Faster foreign growth and weaker dollar

4.9
4.9
4.9
4.9
4.9
4.9
4.9

4.9
5.0
4.9
4.8
4.9
4.9
4.9

4.5
4.8
4.4
4.4
4.6
4.8
4.3

4.3
4.7
3.6
4.1
4.3
4.8
3.9

4.2
4.6
3.3
3.9
4.3
4.8
3.8

4.6
4.7
4.0
4.5
4.6
5.0
4.3

Total PCE prices
Extended Tealbook baseline
Weak business investment
A return to the Greenspan conundrum
Temporarily weaker productivity
Permanently stronger productivity
Stronger dollar
Faster foreign growth and weaker dollar

1.1
1.1
1.1
1.1
1.1
1.1
1.1

1.2
1.2
1.2
1.5
.8
1.1
1.6

1.6
1.6
1.6
2.1
1.1
.9
2.1

1.8
1.9
1.9
2.3
1.4
1.5
2.2

1.9
1.9
2.0
2.3
1.6
1.7
2.1

2.0
2.0
2.1
2.2
1.8
1.9
2.1

Core PCE prices
Extended Tealbook baseline
Weak business investment
A return to the Greenspan conundrum
Temporarily weaker productivity
Permanently stronger productivity
Stronger dollar
Faster foreign growth and weaker dollar

1.9
1.9
1.9
1.9
1.9
1.9
1.9

1.3
1.3
1.3
1.6
.9
1.2
1.5

1.6
1.6
1.6
2.0
1.1
1.0
1.9

1.8
1.8
1.9
2.3
1.4
1.5
2.1

1.9
1.9
2.0
2.2
1.5
1.7
2.1

2.0
2.0
2.1
2.1
1.8
1.9
2.1

Federal funds rate1
Extended Tealbook baseline
Weak business investment
A return to the Greenspan conundrum
Temporarily weaker productivity
Permanently stronger productivity
Stronger dollar
Faster foreign growth and weaker dollar

.4
.4
.4
.4
.4
.4
.4

.6
.6
.6
.7
.7
.6
.7

1.5
1.2
1.6
1.9
1.5
1.0
2.0

2.5
2.1
3.0
3.1
2.5
1.7
3.1

3.2
2.7
4.2
4.0
3.2
2.3
3.9

3.6
3.2
4.7
4.2
3.7
2.9
4.0

1. Percent, average for the final quarter of the period.

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final scenario considers the possibility that stronger growth abroad may cause the dollar
to depreciate relative to the baseline.
The first and second scenarios are simulated in the FRB/US model. The third
scenario uses the EDO model, and the fourth scenario uses the Smets-Wouters model.
The fifth and sixth scenarios are run in the multicountry SIGMA model. In all the
scenarios, the federal funds rate is governed by the same inertial policy rule as in the
baseline, including the adjustments to the intercept in the near term. In all cases, we
assume that the size and composition of the SOMA portfolio follow the baseline paths.

Weak Business Investment
Business investment has recently surprised us on the downside. The BEA
estimates that, over the past three quarters, fixed nonresidential investment (including
both equipment and intangibles as well as structures) and inventory investment have
taken about 1 percentage point, on average, off of GDP growth at an annual rate. In the
staff forecast, the downturn in business investment spending is short lived, with positive
growth contributions from fixed and inventory investment resuming in the second half of
this year. However, this reversal may fail to materialize, and, in this scenario, we assume
that whatever factors have led to the weak pace of business investment experienced in
recent quarters prove more persistent than in the baseline. Specifically, the scenario
assumes that fixed business investment declines at an average annual rate of 1 percent
over the next four quarters before starting to increase again, while inventories continue to
run off through the end of this year.
Real GDP rises at an almost 2 percent annual rate in 2017, ½ percentage point
less than in the baseline. The unemployment rate moves down more gradually than in the
baseline and is just above 4½ percent by the end of 2019. Given the low responsiveness
of inflation to aggregate demand in the FRB/US model, inflation is little changed. With
less resource utilization, the federal funds rate rises more gradually than in the baseline

A Return to the Greenspan Conundrum
The staff projects the federal funds rate to rise steadily over the next several years,
reaching 1½ percent by the end of next year and 2½ percent by the end of 2018. Given
the lackluster recoveries expected in many leading foreign economies, policy rates in
these areas are unlikely to rise in line with the federal funds rate. The resulting interest
rate differentials may increase capital inflows to the United States, which could affect the

Page 73 of 100

Risks & Uncertainty

projection.

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Forecast Confidence Intervals and Alternative Scenarios
Confidence Intervals Based on FRB/US Stochastic Simulations
Extended Tealbook baseline
Weak business investment
A return to the Greenspan conundrum

Temporarily weaker productivity
Permanently stronger productivity

Real GDP

Stronger dollar
Faster foreign growth and weaker dollar

Unemployment Rate
4-quarter percent change

Percent
5

70 percent
interval

8.0
7.5

4
7.0
3

6.5
6.0

2
5.5
1

5.0
4.5

0
4.0
−1

90 percent
interval

3.5
3.0

−2
2.5
−3
2014

2016

2018

2.0

2020

2014

PCE Prices excluding Food and Energy

2016

2018

2020

Federal Funds Rate

4-quarter percent change

Percent
4.0

3.5

3.0

2.5

2.0

Risks & Uncertainty

1.5
3
1.0
2
0.5
1
0.0
0
−0.5
2014

2016

2018

2020

2014

Page 74 of 100

2016

2018

2020

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September 14, 2016

conventional workings of monetary policy. In particular, long-term interest rates may fail
to rise in response to monetary policy tightening, a situation similar to the Greenspan
conundrum of the mid-2000s.1
This scenario simulates the macroeconomic consequences of such a disconnect
between the policy rate and long-term rates. Consistent with the original Greenspan
conundrum period, we keep long rates fixed over the next six quarters at their levels as of
the third quarter of this year; the short rate evolves according to the inputs of the Taylor
rule. Starting in the first quarter of 2018, the conundrum slowly unwinds, and the link
between short and long rates is fully restored by the end of the simulation period.
In this scenario, lower long-term rates boost asset prices and spur consumption
and investment spending. As a result, real GDP growth reaches 3 percent in 2018, about
1 percentage point above the baseline. With a buoyant economy, the trajectory for the
unemployment rate is lower than in the staff forecast, reaching 3¼ percent in 2019,
whereas inflation moves up only marginally above the baseline to 2 percent.2 By the end
of 2019, consistent with output well above potential, the federal funds rate has increased
steeply to 4¼ percent, 1 percentage point higher than in the Tealbook projection. As the
conundrum unwinds and long rates start to rise along with the short rate, GDP growth
declines and the unemployment rate returns to the baseline, although inflation still
remains a little higher.

Temporarily Weaker Productivity
Labor productivity growth has been weak over the past several years, averaging
less than ½ percent per year from 2011 through 2015 and posting a decline over the most
recent four quarters. In the baseline projection, productivity growth is assumed to pick
up to an average annual rate of 1.1 percent between 2017 and 2019, similar to the average
pace over the past 10 years. However, the recent subdued growth of productivity may
persist longer than we envision in the baseline. In this scenario, labor productivity
growth is assumed to remain at only ½ percent per year over the next two years before

The alternative view box “A Return to the Greenspan Conundrum” in the Domestic Economic
Developments and Outlook section details possible mechanisms behind this phenomenon.
2
The small rise in inflation depends importantly on the flatness of the wage and price Phillips
curves used in this scenario. Had we used alternative coefficients that make inflation more sensitive, as in
some DSGE models, inflation would have peaked at about 3 percent.
3
Although the growth rate of productivity returns to the baseline, the level of productivity remains
permanently below the baseline in this scenario. We judge that with a forecast error of this magnitude, the

Page 75 of 100

Risks & Uncertainty

gradually moving up to the baseline pace.3 The weaker path of labor productivity is

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Selected Tealbook Projections and 70 Percent Confidence Intervals Derived
from Historical Tealbook Forecast Errors and FRB/US Simulations
Measure
Real GDP
(percent change, Q4 to Q4)
Projection
Confidence interval
Tealbook forecast errors
FRB/US stochastic simulations
Civilian unemployment rate
(percent, Q4)
Projection
Confidence interval
Tealbook forecast errors
FRB/US stochastic simulations
PCE prices, total
(percent change, Q4 to Q4)
Projection
Confidence interval
Tealbook forecast errors
FRB/US stochastic simulations
PCE prices excluding
food and energy
(percent change, Q4 to Q4)
Projection
Confidence interval
Tealbook forecast errors
FRB/US stochastic simulations

Risks & Uncertainty

Federal funds rate
(percent, Q4)
Projection
Confidence interval
FRB/US stochastic simulations

2016

2017

2018

2019

2020

2021

1.8

2.4

2.0

1.7

1.4

1.3

1.0–3.2
1.2–2.4

.6–4.0
.9–3.8

-.5–3.6
.3–3.6

-1.0–3.1
.0–3.4

...
-.5–3.2

...
-.7–3.2

4.9

4.5

4.3

4.2

4.3

4.6

4.5–5.0
4.6–5.2

3.6–5.3
3.8–5.3

3.0–5.4
3.2–5.4

2.6–5.8
2.9–5.6

...
2.9–5.9

...
3.1–6.2

1.2

1.6

1.8

1.9

2.0

2.1

.7–1.4
.9–1.5

.6–3.2
.8–2.5

1.1–3.4
.9–2.8

1.1–3.3
.9–2.9

...
.9–3.1

...
.9–3.2

1.6

1.8

1.9

2.0

2.1

1.4–1.9
1.3–1.9

1.0–2.4
.8–2.3

1.1–2.7
.9–2.7

...
.9–2.8

...
1.0–3.0

1.5

2.5

3.2

3.5

3.6

.5–.7

.8–2.2

1.1–3.9

1.3–5.1

1.2–5.9

1.0–6.1

Note: Shocks underlying FRB/US stochastic simulations are randomly drawn from the 1969–2015 set of
model equation residuals. Intervals derived from Tealbook forecast errors are based on projections made
from 1980 to 2015 for real GDP and unemployment and from 1998 to 2015 for PCE prices. The intervals
for real GDP, unemployment, and total PCE prices are extended into 2019 using information from the
Blue Chip survey and forecasts from the CBO and CEA.
. . . Not applicable.

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Prediction Intervals Derived from Historical Tealbook Forecast Errors
Historical
Distributions

Forecast Error Percentiles

Q4 Level,
Percent

Unemployment Rate
Historical
revisions

Tealbook
forecasts

Augmented
Tealbook 1

median
15% to 85%
5% to 95%
data/forecast
range

Q4/Q4,
Percent

PCE Inflation

9
2
7
1
5
0

2013

2014

2015

2016

2017

2018

2019

2013

1980 to 2015
Q4/Q4,
Percent

Real GDP Growth

2014

2015

2016

2017

2018

2019

-1
1998 to 2015
Q4/Q4,
Percent

Core PCE Inflation

4
2
2
1
0
0

-2

2013

2014

2015

2016

2017

2018

2019

-4

2013

1980 to 2015

2014

2015

2016

2017

2018

2019

-1
1998 to 2015

Historical Distributions
PCE Inflation

Real GDP Growth

Annual, Percent
25
median
15% to 85%
5% to 95%
20
2.5% to 97.5%
range

Annual, Percent

-4

-8

-12

0
-4

5
0
1980 to
2015

Annual, Percent

1930 to 1947 to
2015
2015

Core PCE Inflation

-16
1930 to 1947 to 1980 to
2015
2015
2015

-16
1930 to 1947 to 1998 to
2015
2015
2015

Note: See the technical note in the appendix for more information on this exhibit.
1. Augmented Tealbook prediction intervals use 2- and 3-year-ahead forecast errors from Blue Chip, CBO, and CEA to extend the Tealbook prediction
intervals through 2019.

Page 77 of 100

Risks & Uncertainty

Unemployment Rate

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September 14, 2016

driven by a combination of lower total factor productivity (TFP) growth and positive
shocks to aggregate demand.4
Although real GDP rises more slowly than in the baseline, the unemployment rate
follows a lower trajectory, declining to 4 percent by the end of 2018, consistent with the
weaker labor productivity and positive shocks to aggregate demand. These forces drive
up firms’ marginal costs of production, leading to a higher path for inflation, which
reaches 2¼ percent by the end of 2018, ½ percentage point higher than in the baseline.
As a result of both the tighter resource utilization and higher inflation, the federal funds
rate rises faster than in the baseline and reaches 4¼ percent at the end of 2020.

Permanently Stronger Productivity
Some recent research suggests that productivity growth over the past few years
may have been depressed by a slowdown in start-up activity and a weakening of firms’
efforts to fully exploit positive productivity shocks—both possibly a result of difficulties
accessing financing.5 With financing conditions for firms much improved from the
immediate aftermath of the financial crisis, these restraints may no longer bind and
productivity growth may rise faster than has been typical in recent years. This scenario
illustrates the implications of such stronger productivity growth by assuming that
structural productivity permanently grows ½ percentage point faster than in the baseline.
The higher path for productivity encourages households and firms to spend more,
which causes output growth to pick up to 2¾ percent at the end of 2017. However,
because this more rapid growth is matched by a pickup in potential output, the
unemployment rate is little changed from the baseline for the entire simulation period.
Inflation is ½ percentage point lower in 2017 and 2018, as the productivity shock reduces
firms’ marginal costs of production and, hence, price pressure.6 In the model used for
this simulation, a permanent increase in TFP growth of ½ percentage point raises the

Risks & Uncertainty

long-run real federal funds rate by just under ¾ percentage point. In this scenario, the
deviation in the level of productivity in the simulation from the baseline after two years is roughly at the
lower 15th percentile of outcomes.
4
In EDO and other DSGE models with both labor and capital as inputs to production, a positive
shock to aggregate demand typically leads to lower labor productivity because the marginal product of
labor declines with an increase in hours.
5
See Ryan A. Decker, John Haltiwanger, Ron S. Jarmin, and Javier Miranda (2016), “Declining
Business Dynamism: What We Know and the Way Forward,” American Economic Review, vol. 106
(May), pp. 203–07.
6
Inflation in the Smets-Wouters model is relatively responsive to costs, compared with FRB/US
and some other estimated DSGE models. In those models, the effects of faster productivity growth on
inflation could be significantly smaller.

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September 14, 2016

increase in the long-run real funds rate is recognized immediately by monetary
policymakers, who adjust their estimates of r* accordingly. This increase in r* almost
exactly offsets the effects of lower inflation on the Taylor rule prescription for the federal
funds rate. Consequently, the federal funds rate path remains similar to the Tealbook
forecast.

Stronger Dollar
The staff baseline projects that the broad real dollar will appreciate 1½ percent per
year over the forecast period as the federal funds rate rises faster than markets currently
appear to expect. However, ongoing U.S. policy normalization could cause a much
larger and more persistent appreciation of the dollar, especially if higher U.S. interest
rates generate financial turbulence in vulnerable EMEs. In this scenario, we assume that,
relative to the baseline, the broad real dollar appreciates 10 percent by the end of next
year, the term premium on U.S. long-term bonds increases slightly, and EME corporate
borrowing spreads rise substantially in the face of capital outflows from EMEs.7 All told,
foreign GDP growth runs about ¾ percentage point below the baseline in 2017,
notwithstanding the sizable depreciation of foreign currencies.
The stronger dollar and weaker foreign growth depress U.S. real net exports.
Consequently, U.S. real GDP growth is 1¾ percent in 2017, almost ¾ percentage point
less than in the baseline. Lower import prices and weaker economic activity cause core
PCE inflation to be only 1 percent in 2017. The federal funds rate follows a shallower
path than in the baseline, rising to about 2¼ percent by the end of 2019.

Faster Foreign Growth and Weaker Dollar
In our baseline forecast, we see the headwinds facing the foreign economies as
diminishing only gradually as foreign output expands at a modest pace and inflation
slowly edges closer to central bank targets. However, the recovery abroad might be
faster if highly accommodative foreign monetary policies, abating fiscal pressures, and
bigger impetus to household and business spending than assumed in the baseline. In this

7
In this scenario, the term premium on longer-term U.S. Treasury securities is assumed to rise
slightly, as might occur if investors were disappointed that monetary policy was not more accommodative
than implied by the inertial Taylor rule. However, if flight-to-safety flows into dollar-denominated assets
were sufficiently large, the term premium could well decline.

Page 79 of 100

Risks & Uncertainty

ongoing improvements in financial conditions—including in the EMEs—generate a

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September 14, 2016

scenario, we assume that foreign GDP growth rises to above 3 percent over the next two
years and thus averages about ½ percentage point per year higher than under our baseline
projection. Increased optimism about the durability of the foreign recovery—and the
perception of diminished tail risks—causes the broad real dollar to depreciate 8 percent
by the end of next year, reversing about half of the appreciation that has occurred since
the middle of 2014.
U.S. real GDP expands 2¾ percent in 2017, nearly ½ percentage point more than
in the baseline, as the weaker dollar and stronger foreign growth boost U.S. real net
exports. The unemployment rate falls to 3¾ percent by the end of 2019. Higher import
prices and heightened resource pressures cause core PCE inflation to move persistently
above 2 percent by early 2018. The federal funds rate rises more quickly than in the

Risks & Uncertainty

baseline, reaching almost 4 percent by the end of 2019.

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September 14, 2016

Alternative Model Forecasts
(Percent change, Q4 to Q4, except as noted)
2016
Measure and projection

2017

2018

June
Tealbook

Current
Tealbook

June
Tealbook

Current
Tealbook

June
Tealbook

Current
Tealbook

Real GDP
Staff
FRB/US
EDO

1.9
2.0
1.9

1.8
2.1
2.0

2.4
2.5
2.1

2.4
2.5
2.6

2.1
2.4
2.4

2.0
2.4
2.6

Unemployment rate1
Staff
FRB/US
EDO

4.8
4.5
4.9

4.9
4.6
4.8

4.5
4.1
5.1

4.5
4.1
4.8

4.3
3.9
5.1

4.3
3.9
4.9

Total PCE prices
Staff
FRB/US
EDO

1.3
1.5
1.6

1.2
1.2
1.3

1.7
2.0
2.4

1.6
1.9
2.1

1.8
1.9
2.4

1.8
2.0
2.3

Core PCE prices
Staff
FRB/US
EDO

1.6
1.8
2.0

1.6
1.7
1.7

1.6
2.0
2.4

1.6
1.9
2.1

1.8
1.9
2.4

1.8
1.9
2.3

Federal funds rate1
Staff
FRB/US
EDO

.8
.8
1.2

.6
.6
.8

1.6
1.8
2.5

1.5
1.3
2.3

2.6
2.7
3.2

2.5
2.2
3.1

1. Percent, average for Q4.

Estimates of the Short-Run Real Natural Rate of Interest
Percent, annual rate

.....

Median
Range across models

12
10
8
6
4
2
-2
-4
-6
-8
-10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Note: Estimates are based on the three models from the System DSGE project; for more
information, see the box "Estimates of the Short-Run Real Natural Rate of Interest" in the March
2016 Tealbook. The gray shaded bar indicates a period of recession as defined by the National
Bureau of Economic Research.
Page 81 of 100

-12

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September 14, 2016

Assessment of Key Macroeconomic Risks (1)

Probability of Inflation Events
(4 quarters ahead)
Probability that the 4-quarter change in total
PCE prices will be ...

Staff

FRB/US

EDO

BVAR

Greater than 3 percent
Current Tealbook
Previous Tealbook

.05
.04

.07
.10

.05
.12

.01
.06

Less than 1 percent
Current Tealbook
Previous Tealbook

.23
.27

.15
.11

.08
.02

.46
.17

Probability of Unemployment Events
(4 quarters ahead)
Probability that the unemployment rate will ...

Staff

FRB/US

EDO

BVAR

Increase by 1 percentage point
Current Tealbook
Previous Tealbook

.03
.06

.01
.02

.14
.20

.02
.02

Decrease by 1 percentage point
Current Tealbook
Previous Tealbook

.10
.05

.32
.19

.15
.08

.16
.19

Probability of Near-Term Recession

Risks & Uncertainty

Probability that real GDP declines in
the next two quarters
Current Tealbook
Previous Tealbook

Staff

FRB/US

EDO

BVAR

Factor
Model

.02
.03

.01
.02

.04
.06

.02
.03

.01
.05

Note: “Staff” represents stochastic simulations in FRB/US around the staff baseline; baselines for FRB/US, BVAR, EDO, and
the factor model are generated by those models themselves, up to the current-quarter estimate. Data for the current quarter are
taken from the staff estimate for the second Tealbook in each quarter; if the second Tealbook for the current quarter has not yet
been published, the preceding quarter is taken as the latest historical observation.

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September 14, 2016

Assessment of Key Macroeconomic Risks (2)

Probability that Total PCE Inflation Is above 3 Percent

Probability that Total PCE Inflation Is below 1 Percent

(4 quarters ahead)

(4 quarters ahead)
Probability

Probability
1

FRB/US
BVAR

0
1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

0
1998

Probability that the Unemployment Rate Increases 1 ppt

2000

2002

2004

2006

2008

2010

2012

2014

2016

Probability that the Unemployment Rate Decreases 1 ppt

(4 quarters ahead)

(4 quarters ahead)
Probability

Probability
1

0
1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

0
1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Probability that Real GDP Declines in Each of the Next Two Quarters
Probability
1

0
1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Note: See notes on facing page. Recession and inflation probabilities for FRB/US and the BVAR are real-time estimates. See
Robert J. Tetlow and Brian Ironside (2007), "Real−Time Model Uncertainty in the United States: The Fed, 1996−2003,"
Journal of Money, Credit and Banking , vol. 39 (October), pp. 1533−61.

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(This page is intentionally blank.)

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September 14, 2016

Appendix
Technical Note on “Prediction Intervals Derived from
Historical Tealbook Forecast Errors”
This technical note provides additional details about the exhibit “Prediction Intervals
Derived from Historical Tealbook Forecast Errors.” In the four large fan charts, the black dotted
lines show staff projections and current estimates of recent values of four key economic variables:
average unemployment rate in the fourth quarter of each year and the Q4/Q4 percent change for
real GDP, total PCE prices, and core PCE prices. (The GDP series is adjusted to use GNP for
those years when the staff forecast GNP and to strip out software and intellectual property
products from the currently published data for years preceding their introduction. Similarly, the
core PCE inflation series is adjusted to strip out the “food away from home” component for years
before it was included in core.)

The prediction intervals around the current and one-year-ahead forecasts are derived from
historical staff forecast errors, comparing staff forecasts with the latest published data. For the
unemployment rate and real GDP growth, errors were calculated for 1980 through 2014, yielding
percentiles of the sizes of the forecast errors. For PCE and core PCE inflation, errors for
1998 through 2014 were used. This shorter range reflects both more limited data on staff
forecasts of PCE inflation and the staff judgment that the distribution of inflation since the mid1990s is more appropriate for the projection period than distributions of inflation reaching further
back. In all cases, the prediction intervals are computed by adding the percentile bands of the
errors onto the forecast. The blue bands encompass 70 percent prediction-interval ranges; adding
the green bands expands this range to 90 percent. The dark blue line plots the median of the
prediction intervals. There is not enough historical forecast data to calculate meaningful
90 percent ranges for the two inflation series. A median line above the staff forecast means that
forecast errors were positive more than half of the time.

Stanley Lebergott (1957), “Annual Estimates of Unemployment in the United States,
1900–1954,” in National Bureau of Economic Research, The Measurement and Behavior of Unemployment
(Princeton, N.J.: Princeton University Press), pp. 213–41.
1

Page 85 of 100

Risks & Uncertainty

The historical distributions of the corresponding series (with the adjustments described
above) are plotted immediately to the right of each of the fan charts. The thin black lines show
the highest and lowest values of the series during the indicated time period. At the bottom of the
page, the distributions over three different time periods are plotted for each series. To enable the
use of data for years prior to 1947, we report annual-average data in this section. The annual data
going back to 1930 for GDP growth, PCE inflation, and core PCE inflation are available in the
conventional national accounts; we used estimates from Lebergott (1957) for the unemployment
rate from 1930 to 1946.1

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September 14, 2016

Because the staff has produced two-year-ahead forecasts for only a few years, the
intervals around the two-year-ahead forecasts are constructed by augmenting the staff projection
errors with information from outside forecasters: the Blue Chip consensus, the Council of
Economic Advisers, and the Congressional Budget Office. Specifically, we calculate prediction
intervals for outside forecasts in the same manner as for the staff forecasts. We then calculate the
change in the error bands from outside forecasts from one year ahead to two years ahead and
apply the average change to the staff’s one-year-ahead error bands. That is, we assume that any
deterioration in the performance between the one- and two-year-ahead projections of the outside
forecasters would also apply to the Tealbook projections. Limitations on the availability of data
mean that a slightly shorter sample is used for GDP and unemployment, and the outside
projections may only be for a similar series, such as total CPI instead of total PCE prices or
annual growth rates of GDP instead of four-quarter changes. In particular, because data on
forecasts for core inflation by these outside forecasters are much more limited, we did not
extrapolate the staff’s errors for core PCE inflation two years ahead.

Risks & Uncertainty

The intervals around the historical data in the four fan charts are based on the history of
data revisions for each series. The previous-year, two-year-back, and three-year-back values as
of the current Tealbook forecast are subtracted from the corresponding currently published
estimates (adjusted as described earlier) to produce revisions, which are then combined into
distributions and revision intervals in the same way that the prediction intervals are created.

Page 86 of 100

Page 87 of 100

2.5
3.3
4.3
4.4
4.1
4.0

Two-quarter2
2016:Q2
Q4
2017:Q2
Q4
2018:Q2
Q4

3.0
3.2
4.2
4.0
3.8

2.6
3.8
4.2
4.2
4.1
3.8

1.3
3.8
3.9
3.8
4.2
4.2
4.1
4.3
4.3
4.0
3.8
3.8

09/14/16

2.0
1.7
2.5
2.1
1.8

1.4
2.0
2.3
2.7
2.1
2.1

1.1
1.8
1.9
2.1
2.1
2.6
2.5
2.8
1.9
2.3
1.9
2.3

07/20/16

1.9
1.8
2.4
2.0
1.7

1.1
2.5
2.3
2.5
2.1
1.8

.8
1.4
2.7
2.4
2.3
2.3
2.4
2.6
2.2
1.9
1.8
1.9

09/14/16

Real GDP

.5
1.1
1.7
1.8
1.9

1.1
1.2
1.8
1.6
1.8
1.8

.2
1.9
1.1
1.4
1.8
1.7
1.6
1.6
1.8
1.8
1.8
1.8

07/20/16

.4
1.2
1.6
1.8
1.9

1.1
1.2
1.7
1.6
1.9
1.8

.3
2.0
1.1
1.4
1.6
1.7
1.6
1.5
1.9
1.9
1.8
1.8

09/14/16

PCE price index

1.4
1.6
1.6
1.8
1.9

1.9
1.3
1.6
1.5
1.8
1.8

2.0
1.7
1.4
1.3
1.7
1.6
1.6
1.5
1.8
1.8
1.8
1.8

07/20/16

Greensheets

1.4
1.6
1.5
1.7
1.9

1.4
1.6
1.6
1.8
1.9

1.9
1.3
1.7
1.5
1.9
1.8

2.1
1.8
1.3
1.4
1.7
1.6
1.5
1.5
1.9
1.9
1.8
1.8

09/14/16

5.3
4.9
4.8
4.4
4.3

-.7
-.1
-.3
-.3
.0

-.1
.0
-.1
-.2
-.2
-.1

4.9
4.9
4.9
4.9
4.9
4.8
4.7
4.6
4.5
4.4
4.4
4.3

07/20/16

5.3
4.9
4.7
4.3
4.2

-.7
-.1
-.4
-.2
-.1

-.1
.0
-.2
-.2
-.2
.0

4.9
4.9
4.9
4.9
4.8
4.7
4.6
4.5
4.4
4.3
4.3
4.3

09/14/16

Core PCE price index Unemployment rate1

Class II FOMC – Restricted (FR)

Annual
2015
3.5
3.7
2.4
2.6
.3
.3
1.3
2016
2.8
2.8
1.7
1.5
1.0
1.0
1.6
2017
4.0
4.1
2.2
2.3
1.6
1.5
1.5
2018
4.2
4.1
2.3
2.2
1.8
1.8
1.7
2019
3.8
2.0
1.8
1.9
1.9
1.9
1. Level, except for two-quarter and four-quarter intervals.
2. Percent change from two quarters earlier; for unemployment rate, change is in percentage points.
3. Percent change from four quarters earlier; for unemployment rate, change is in percentage points.

3.1
2.9
4.3
4.0

1.4
3.5
2.9
3.7
4.1
4.5
4.3
4.6
3.9
4.2
3.9
4.2

Quarterly
2016:Q1
Q2
Q3
Q4
2017:Q1
Q2
Q3
Q4
2018:Q1
Q2
Q3
Q4

Four-quarter3
2015:Q4
2016:Q4
2017:Q4
2018:Q4
2019:Q4

07/20/16

Interval

Nominal GDP

Changes in GDP, Prices, and Unemployment
(Percent, annual rate except as noted)

Authorized for Public Release
September 14, 2016

Page 88 of 100

-11
53

Change in priv. inventories2
Previous Tealbook2
10
55

1.7
2.3
3.1
2.5
3.9
.8

-570
-585
2.5
3.7

2.3
3.1
1.8
4.5
4.1
-2.4

-5.0
-.7

3.0
2.8
8.2
1.5
2.7

2.2
1.9
2.5
2.7

2.7
1.9

11
43

2.8
2.1
3.0
2.6
3.5
2.7

-583
-591
1.5
3.2

5.1
3.2
6.3
2.9
1.0
4.7

-1.3
1.3

2.2
2.4
3.1
2.9
1.9

2.3
2.4
2.5
2.5

2.4
2.1

15
49

1.8
1.3
2.4
2.1
2.9
1.5

-606
-628
1.5
4.6

2.0
2.9
2.8
2.9
-.6
2.9

6.0
7.0

2.7
2.8
5.1
2.6
2.4

2.2
1.9
2.8
3.0

2.3
2.1

17
47

1.6
2.4
1.9
1.8
2.2
1.4

-628
-646
1.8
4.6

2.7
3.5
3.3
3.6
.3
3.1

7.6
8.3

2.7
2.8
5.0
2.3
2.4

2.3
2.7
2.9
3.1

2.3
2.6

19
45

1.4
1.3
1.3
1.0
1.8
1.4

-648
-668
2.2
4.6

3.0
3.6
3.6
3.8
.9
3.1

8.1
10.3

2.7
2.8
4.8
2.3
2.5

2.3
2.5
2.9
3.2

2.4
2.5

2017

21
46

1.1
.5
.6
.7
.5
1.4

-657
-672
2.7
3.5

3.1
4.2
4.0
4.7
-.1
2.4

8.3
9.6

2.7
2.8
5.4
2.5
2.3

2.5
2.8
3.0
3.3

2.6
2.8

23
37

.9
.3
.4
.2
.6
1.2

-675
-699
3.0
4.9

3.0
3.8
3.8
4.2
.1
2.2

6.2
8.4

2.5
2.6
4.7
2.7
2.1

2.1
2.1
2.8
3.1

2.2
1.9

20
26

.6
1.4
-.4
-.3
-.5
1.2

-689
-706
3.0
4.3

2.5
3.1
3.1
3.4
-.1
1.7

5.0
7.8

2.5
2.6
4.5
2.6
2.1

2.0
2.6
2.6
2.9

1.9
2.3

16
15

.5
.5
-.6
-.5
-.7
1.2

-701
-717
3.1
4.1

1.8
2.6
2.4
3.0
-.5
1.2

4.0
5.4

2.4
2.5
4.1
2.6
2.1

1.9
2.2
2.4
2.7

1.8
1.9

2018

13
12

.3
.2
-1.3
-1.5
-1.1
1.2

-707
-714
3.1
3.2

1.7
2.5
2.2
2.9
-.5
1.1

3.2
4.0

2.4
2.5
3.7
2.6
2.1

1.9
2.3
2.3
2.6

1.9
2.3

13
55

1.1
1.2
1.0
-.3
3.0
1.2

-569
-569
1.2
1.6

.9
-.3
1.0
.9
.7
-4.9

-1.7
2.9

2.8
2.7
5.1
3.0
2.4

2.1
1.9
2.3
2.3

1.8
1.7

20161

18
47

1.5
1.4
1.6
1.4
1.8
1.4

-635
-654
2.0
4.4

2.7
3.6
3.4
3.8
.1
2.9

7.5
8.8

2.7
2.8
5.1
2.4
2.4

2.3
2.5
2.9
3.2

2.4
2.5

20171

18
22

.6
.6
-.5
-.5
-.4
1.2

-693
-709
3.1
4.1

2.2
3.0
2.9
3.4
-.3
1.5

4.6
6.4

2.5
2.6
4.3
2.6
2.1

2.0
2.3
2.5
2.8

2.0
2.1

20181

-.4
-.3
-.6
1.2

2.8
4.0

-739

-1.1

1.9

1.2

2.4

1.8
2.4
2.4

2.3

2.2

1.7

1.7
1.8

20191

Class II FOMC – Restricted (FR)

1. Change from fourth quarter of previous year to fourth quarter of year indicated.
2. Billions of chained (2009) dollars.

-1.5
-1.1
-.3
-3.1
3.8
-2.2

Gov’t. cons. & invest.
Previous Tealbook
Federal
Defense
Nondefense
State & local

-.1
-2.8
.4
.1
-2.2
-13.1

Nonres. priv. fixed invest.
Previous Tealbook
Equipment & intangibles
Previous Tealbook
Nonres. structures
Previous Tealbook
-558
-551
1.7
.2

-7.8
-3.5

Residential investment
Previous Tealbook

Net exports2
Previous Tealbook2
Exports
Imports

4.4
4.2
9.9
5.7
3.2

2.6
2.1
3.2
2.8

Final sales
Previous Tealbook
Priv. dom. final purch.
Previous Tealbook

Personal cons. expend.
Previous Tealbook
Durables
Nondurables
Services

1.4
1.8

Real GDP
Previous Tealbook

Item

2016

Greensheets
Changes in Real Gross Domestic Product and Related Items
(Percent, annual rate except as noted)

Authorized for Public Release
September 14, 2016

Page 89 of 100

-1.1
-1.1
3.2
2.0
5.5
-4.0
58
58

Gov’t. cons. & invest.
Previous Tealbook
Federal
Defense
Nondefense
State & local

Change in priv. inventories1
Previous Tealbook1

38
38

-3.0
-3.0
-4.0
-4.1
-3.9
-2.3

-459
-459
4.2
3.5

9.0
9.0
9.2
9.2
8.0
8.0

6.0
6.0

1.5
1.5
4.8
.4
1.4

1.5
1.5
2.6
2.6

1.7
1.7

2011

55
55

-2.2
-2.2
-2.1
-3.9
1.0
-2.3

-447
-447
2.2
.3

5.2
5.2
5.5
5.5
4.1
4.1

15.7
15.7

1.3
1.3
7.2
.8
.6

1.7
1.7
2.3
2.3

1.3
1.3

2012

Greensheets

79
61

-2.8
-2.9
-6.7
-7.1
-6.0
-.1

-405
-417
5.9
2.5

4.8
4.2
4.5
3.6
5.8
6.5

6.8
3.5

2.0
2.3
5.2
2.6
1.3

2.0
1.9
2.6
2.6

2.7
2.5

2013

58
68

.3
.4
-1.3
-4.1
3.4
1.3

-426
-443
3.1
6.1

5.0
5.5
4.1
5.7
8.0
5.0

6.2
5.1

3.5
3.2
8.6
2.8
2.9

2.7
2.6
3.8
3.6

2.5
2.5

2014

84
98

2.2
1.1
1.7
.6
3.4
2.5

-540
-543
-2.2
2.5

.8
1.5
3.8
3.0
-8.8
-3.5

13.1
9.4

2.6
2.7
5.5
2.3
2.2

2.0
2.0
2.7
2.8

1.9
2.0

2015

13
55

1.1
1.2
1.0
-.3
3.0
1.2

-569
-569
1.2
1.6

.9
-.3
1.0
.9
.7
-4.9

-1.7
2.9

2.8
2.7
5.1
3.0
2.4

2.1
1.9
2.3
2.3

1.8
1.7

2016

18
47

1.5
1.4
1.6
1.4
1.8
1.4

-635
-654
2.0
4.4

2.7
3.6
3.4
3.8
.1
2.9

7.5
8.8

2.7
2.8
5.1
2.4
2.4

2.3
2.5
2.9
3.2

2.4
2.5

2017

18
22

.6
.6
-.5
-.5
-.4
1.2

-693
-709
3.1
4.1

2.2
3.0
2.9
3.4
-.3
1.5

4.6
6.4

2.5
2.6
4.3
2.6
2.1

2.0
2.3
2.5
2.8

2.0
2.1

2018

-.4
-.3
-.6
1.2

2.8
4.0

-739

-1.1

1.9

1.2

2.4

1.8
2.4
2.4

2.3

2.2

1.7

1.7
1.8

2019

Class II FOMC – Restricted (FR)

1. Billions of chained (2009) dollars.

-459
-459
10.1
12.0

Net exports1
Previous Tealbook1
Exports
Imports

8.1
8.1
12.0
12.0
-4.0
-4.0

-5.2
-5.2

Residential investment
Previous Tealbook

Nonres. priv. fixed invest.
Previous Tealbook
Equipment & intangibles
Previous Tealbook
Nonres. structures
Previous Tealbook

3.1
3.1
9.3
3.3
2.0

2.0
2.0
3.5
3.5

Final sales
Previous Tealbook
Priv. dom. final purch.
Previous Tealbook

Personal cons. expend.
Previous Tealbook
Durables
Nondurables
Services

2.7
2.7

2010

Real GDP
Previous Tealbook

Item

Changes in Real Gross Domestic Product and Related Items
(Change from fourth quarter of previous year to fourth quarter of year indicated, unless otherwise noted)

Authorized for Public Release
September 14, 2016

Page 90 of 100

-1.2
-.3

Change in priv. inventories
Previous Tealbook

.5
.0

.3
.4
.2
.1
.1
.1

-.2
-.8
.3
-.5

.3
.4
.2
.4
.1
-.1

-.2
.0

2.1
1.9
.6
.2
1.3

2.2
1.9
2.2
2.3

2.7
1.9

.0
-.3

.5
.4
.2
.1
.1
.3

-.3
-.1
.2
-.5

.6
.4
.6
.3
.0
.1

.0
.0

1.5
1.7
.2
.4
.9

2.3
2.4
2.1
2.1

2.4
2.1

.1
.1

.3
.2
.2
.1
.1
.2

-.5
-.8
.2
-.7

.3
.4
.3
.3
.0
.1

.2
.2

1.9
1.9
.4
.4
1.1

2.2
1.9
2.3
2.5

2.3
2.1

.0
-.1

.3
.4
.1
.1
.1
.2

-.5
-.4
.2
-.7

.3
.4
.3
.4
.0
.1

.3
.3

1.8
1.9
.4
.3
1.1

2.3
2.7
2.5
2.7

2.3
2.6

.0
.0

.2
.2
.1
.0
.0
.2

-.4
-.5
.3
-.7

.4
.4
.3
.4
.0
.1

.3
.4

1.8
1.9
.4
.3
1.2

2.3
2.5
2.5
2.8

2.4
2.5

2017

.1
.0

.2
.1
.0
.0
.0
.2

-.2
-.1
.3
-.5

.4
.5
.4
.5
.0
.1

.3
.4

1.8
1.9
.4
.4
1.1

2.5
2.8
2.5
2.8

2.6
2.8

.1
-.2

.2
.1
.0
.0
.0
.1

-.4
-.6
.4
-.7

.4
.5
.4
.4
.0
.1

.2
.3

1.7
1.8
.3
.4
1.0

2.1
2.1
2.3
2.6

2.2
1.9

-.1
-.3

.1
.2
.0
.0
.0
.1

-.3
-.1
.4
-.6

.3
.4
.3
.3
.0
.0

.2
.3

1.7
1.8
.3
.4
1.0

2.0
2.6
2.2
2.5

1.9
2.3

-.1
-.2

.1
.1
.0
.0
.0
.1

-.2
-.2
.4
-.6

.2
.3
.2
.3
.0
.0

.2
.2

1.7
1.8
.3
.4
1.0

1.9
2.2
2.1
2.3

1.8
1.9

2018

-.1
-.1

.0
.0
-.1
-.1
.0
.1

-.1
.1
.4
-.5

.2
.3
.2
.3
.0
.0

.1
.2

1.7
1.8
.3
.4
1.0

1.9
2.3
2.0
2.2

1.9
2.3

-.3
-.2

.2
.2
.1
.0
.1
.1

-.1
-.2
.2
-.2

.1
.0
.1
.1
.0
-.1

-.1
.1

1.9
1.9
.4
.4
1.1

2.1
1.9
2.0
1.9

1.8
1.7

20161

.1
.0

.3
.2
.1
.1
.1
.2

-.4
-.4
.2
-.6

.3
.4
.3
.4
.0
.1

.3
.3

1.8
1.9
.4
.4
1.1

2.3
2.5
2.5
2.7

2.4
2.5

20171

.0
-.2

.1
.1
.0
.0
.0
.1

-.2
-.2
.4
-.6

.3
.4
.3
.3
.0
.0

.2
.3

1.7
1.8
.3
.4
1.0

2.0
2.3
2.1
2.4

2.0
2.1

20181

.0
.0
.0
.1

.3
-.6

-.3

.1
.4
1.1

1.6

1.9

1.7

1.7
1.8

20191

Class II FOMC – Restricted (FR)

1. Change from fourth quarter of previous year to fourth quarter of year indicated.

-.3
-.2
.0
-.1
.1
-.2

Gov’t. cons. & invest.
Previous Tealbook
Federal
Defense
Nondefense
State & local

.0
-.4
.0
.0
-.1
-.4

Nonres. priv. fixed invest.
Previous Tealbook
Equipment & intangibles
Previous Tealbook
Nonres. structures
Previous Tealbook
.2
-.1
.2
.0

-.3
-.1

Residential investment
Previous Tealbook

Net exports
Previous Tealbook
Exports
Imports

3.0
2.9
.7
.8
1.5

2.6
2.1
2.7
2.4

Final sales
Previous Tealbook
Priv. dom. final purch.
Previous Tealbook

Personal cons. expend.
Previous Tealbook
Durables
Nondurables
Services

1.4
1.8

Real GDP
Previous Tealbook

Item

2016

Contributions to Changes in Real Gross Domestic Product
(Percentage points, annual rate except as noted)

Greensheets

Authorized for Public Release
September 14, 2016

2.3
2.1
-.8
.8
3.3
2.7
4.2
1.9
.5
1.0

ECI, hourly compensation2
Previous Tealbook2

Business sector
Output per hour
Previous Tealbook
Compensation per hour
Previous Tealbook
Unit labor costs
Previous Tealbook

Page 91 of 100

Core goods imports chain-wt. price index3
Previous Tealbook3
2.4
1.8

2.4
1.5
3.4
2.8
1.0
1.2

2.1
2.1

1.6
1.7
1.9
2.1

1.1
1.1
2.1
-3.8
-1.5
-.2
1.3
1.4
1.2
1.4

1.2
.9

.6
.7

.7
.8
2.9
2.9
2.2
2.1

2.2
2.2

2.1
2.0
2.2
1.9

1.4
1.4
2.4
3.0
.9
1.4
1.4
1.3
1.2
1.3

1.4
1.6

.9
1.1

1.1
.8
2.9
3.1
1.8
2.3

2.3
2.3

2.1
2.3
2.2
2.1

1.6
1.8
.8
5.3
1.5
1.8
1.7
1.7
1.6
1.7

1.9
2.0

.8
.9

1.0
1.4
2.8
2.8
1.8
1.4

2.3
2.4

2.3
2.2
2.2
2.2

1.7
1.7
4.3
3.4
1.4
1.9
1.6
1.6
1.6
1.6

1.8
1.8

.8
.9

1.2
1.7
2.8
2.9
1.6
1.2

2.3
2.4

2.2
2.3
2.2
2.3

1.5
1.6
2.3
2.5
2.1
2.0
1.5
1.5
1.4
1.5

1.7
1.7

Greensheets

.8
.9

1.0
1.2
2.8
2.8
1.8
1.6

2.3
2.4

2.2
2.2
2.2
2.2

1.6
1.6
3.0
2.6
1.9
2.0
1.5
1.6
1.4
1.6

1.7
1.7

2017

.8
1.0

1.2
.9
3.2
3.1
2.0
2.2

2.4
2.4

2.3
2.3
2.3
2.3

1.9
1.8
2.4
2.4
2.2
2.0
1.9
1.8
1.8
1.8

2.1
2.0

.8
1.0

.9
1.5
3.1
3.1
2.1
1.6

2.4
2.4

2.3
2.2
2.3
2.3

1.9
1.8
2.2
1.7
2.2
2.0
1.9
1.8
1.8
1.8

2.0
1.9

.7
1.0

1.0
1.1
3.1
3.1
2.1
2.0

2.3
2.3

2.3
2.2
2.3
2.3

1.8
1.8
1.7
1.4
2.2
2.0
1.8
1.8
1.7
1.8

1.9
1.9

2018

.7
1.0

1.3
1.6
3.1
3.1
1.8
1.5

2.3
2.3

2.3
2.2
2.3
2.3

1.8
1.8
1.6
1.6
2.2
2.0
1.8
1.8
1.7
1.8

1.9
1.9

.3
.3

.4
.7
2.1
3.0
1.7
2.3

2.3
2.3

1.5
1.5
2.2
2.2

1.2
1.1
-4.3
-5.5
-1.0
-.6
1.6
1.6
1.5
1.5

1.3
1.2

20161

.8
1.0

1.1
1.3
2.9
2.9
1.8
1.6

2.3
2.3

2.2
2.3
2.2
2.2

1.6
1.7
2.6
3.4
1.7
1.9
1.6
1.6
1.5
1.6

1.8
1.8

20171

.8
1.0

1.1
1.3
3.1
3.1
2.0
1.8

2.4
2.4

2.3
2.2
2.3
2.3

1.8
1.8
2.0
1.8
2.2
2.0
1.8
1.8
1.8
1.8

2.0
1.9

20181

2.0

3.2

1.2

2.4

2.3

1.9
1.9
1.9

2.2

1.9
1.9
1.7

2.0

20191

Class II FOMC – Restricted (FR)

1. Change from fourth quarter of previous year to fourth quarter of year indicated.
2. Private-industry workers.
3. Core goods imports exclude computers, semiconductors, oil, and natural gas.

2.5
2.5
2.1
2.1

2.0
1.9
15.5
15.6
-1.8
-1.7
1.8
1.7
1.6
1.7

2.3
1.7

Previous Tealbook
Ex. food & energy
Previous Tealbook

CPI

PCE chain-wt. price index
Previous Tealbook
Energy
Previous Tealbook
Food
Previous Tealbook
Ex. food & energy
Previous Tealbook
Ex. food & energy, market based
Previous Tealbook

GDP chain-wt. price index
Previous Tealbook

Item

2016

Changes in Prices and Costs
(Percent, annual rate except as noted)

Authorized for Public Release
September 14, 2016

1.3
1.3
6.4
6.4
1.3
1.3
1.0
1.0
.7
.7
1.2
1.2
.6
.6
2.1
2.1
1.6
1.7
1.2
1.3
-.4
-.4
2.3
2.3

PCE chain-wt. price index
Previous Tealbook
Energy
Previous Tealbook
Food
Previous Tealbook
Ex. food & energy
Previous Tealbook
Ex. food & energy, market based
Previous Tealbook

CPI

Previous Tealbook
Ex. food & energy
Previous Tealbook

ECI, hourly compensation1
Previous Tealbook1

Business sector
Output per hour
Previous Tealbook
Compensation per hour
Previous Tealbook
Unit labor costs
Previous Tealbook

Page 92 of 100

Core goods imports chain-wt. price index2
Previous Tealbook2
4.3
4.3

.0
.0
.5
.6
.6
.6

2.2
2.2

3.3
3.3
2.2
2.2

2.7
2.7
12.0
12.0
5.1
5.1
1.9
1.9
1.9
1.9

1.9
1.9

2011

.1
.1

-.2
-.2
5.8
5.8
6.0
6.0

1.8
1.8

1.9
1.9
1.9
1.9

1.8
1.8
2.3
2.3
1.2
1.2
1.8
1.8
1.5
1.5

1.9
1.9

2012

-1.5
-1.1

2.0
1.6
.0
-.1
-2.0
-1.7

2.0
2.0

1.2
1.2
1.7
1.7

1.2
1.2
-2.5
-2.5
.7
.8
1.5
1.5
1.1
1.2

1.6
1.6

2013

.5
.5

-.1
-.1
2.7
2.7
2.8
2.8

2.3
2.3

1.2
1.2
1.7
1.7

1.2
1.1
-6.2
-6.4
2.7
2.8
1.6
1.4
1.2
1.2

1.5
1.3

2014

-3.3
-3.4

.5
.7
3.1
3.2
2.6
2.5

1.9
1.9

.4
.4
2.0
2.0

.4
.5
-15.8
-15.1
.3
.2
1.4
1.4
1.1
1.2

1.1
1.1

2015

.3
.3

.4
.7
2.1
3.0
1.7
2.3

2.3
2.3

1.5
1.5
2.2
2.2

1.2
1.1
-4.3
-5.5
-1.0
-.6
1.6
1.6
1.5
1.5

1.3
1.2

2016

.8
1.0

1.1
1.3
2.9
2.9
1.8
1.6

2.3
2.3

2.2
2.3
2.2
2.2

1.6
1.7
2.6
3.4
1.7
1.9
1.6
1.6
1.5
1.6

1.8
1.8

2017

.8
1.0

1.1
1.3
3.1
3.1
2.0
1.8

2.4
2.4

2.3
2.2
2.3
2.3

1.8
1.8
2.0
1.8
2.2
2.0
1.8
1.8
1.8
1.8

2.0
1.9

2018

2.0

3.2

1.2

2.4

2.3

1.9
1.9
1.9

2.2

1.9
1.9
1.7

2.0

2019

Class II FOMC – Restricted (FR)

1. Private-industry workers.
2. Core goods imports exclude computers, semiconductors, oil, and natural gas.

1.8
1.8

2010

GDP chain-wt. price index
Previous Tealbook

Item

Greensheets
Changes in Prices and Costs
(Change from fourth quarter of previous year to fourth quarter of year indicated, unless otherwise noted)

Authorized for Public Release
September 14, 2016

59.7
59.7

Employment-to-Population Ratio3
Employment-to-Population Trend3

Page 93 of 100

-.5
10.9
18.1
3.0

Corporate profits7
Profit share of GNP3

Gross national saving rate3
Net national saving rate3
18.1
3.2

13.7
11.1

3.9
2.9
1.8
5.7
5.3

1.1
17.3

1.9
.9
.5
1.2
74.9
75.1

.1
.0

59.7
59.6

.6
4.9
4.9
5.0
5.0

18.2
3.2

2.7
11.1

3.8
2.2
2.5
5.7
5.3

1.2
17.2

-.9
.4
-.3
.5
74.7
75.0

.2
.1

59.6
59.6

.5
4.9
4.9
5.0
5.0

18.1
3.1

4.8
11.1

4.2
3.9
3.1
5.9
5.4

1.2
17.1

.7
.8
.4
.4
74.6
74.9

.4
.2

59.6
59.5

.5
4.8
4.9
5.0
5.0

18.1
3.2

-.8
11.0

4.2
2.1
2.1
5.8
5.2

1.2
17.0

.9
1.1
1.1
1.2
74.7
75.0

.6
.5

59.6
59.4

.6
4.7
4.8
5.0
5.0

2017

18.1
3.1

6.1
11.1

4.1
2.5
2.4
5.8
5.1

1.3
16.9

.8
1.2
1.2
1.4
74.8
75.1

.8
.7

59.6
59.4

.6
4.6
4.7
5.0
5.0

18.1
3.2

5.2
11.1

4.3
2.2
2.3
5.6
5.0

1.3
16.8

1.5
1.9
1.4
1.8
74.9
75.3

1.1
1.0

59.7
59.3

.6
4.5
4.6
5.0
5.0

18.0
3.1

5.3
11.1

4.3
2.1
3.0
5.5
5.0

1.4
16.8

1.5
1.7
1.2
1.3
74.9
75.5

1.2
1.0

59.7
59.2

.5
4.4
4.5
5.0
5.0

18.0
3.1

-1.9
11.0

4.0
2.1
2.2
5.4
5.0

1.4
16.8

1.1
1.7
1.1
1.7
75.0
75.6

1.3
1.2

59.7
59.1

.4
4.3
4.4
5.0
5.0

2018

18.0
3.0

4.5
11.0

3.8
2.4
2.4
5.4
4.9

1.4
16.7

1.1
1.5
1.1
1.5
75.0
75.8

1.4
1.2

59.6
59.1

.4
4.3
4.4
5.0
5.0

17.9
2.9

3.7
11.0

3.8
2.5
1.8
5.4
4.7

1.4
16.7

1.0
1.4
.9
1.4
75.1
75.9

1.5
1.4

59.6
59.0

.4
4.3
4.3
5.0
5.0

Greensheets

18.2
3.2

7.3
11.1

3.2
2.4
2.8
5.7
5.3

1.2
17.2

-.4
-.4
-.1
.2
74.7
75.0

.2
.1

59.6
59.6

2.3
4.9
4.9
5.0
5.0

20161

18.1
3.2

3.8
11.1

4.2
2.7
2.5
5.6
5.0

1.3
17.0

1.0
1.3
1.0
1.2
74.9
75.3

1.1
1.0

59.7
59.3

2.2
4.5
4.6
5.0
5.0

20171

17.9
2.9

2.9
11.0

4.0
2.3
2.4
5.4
4.7

1.4
16.8

1.2
1.6
1.1
1.5
75.1
75.9

1.5
1.4

59.6
59.0

1.8
4.3
4.3
5.0
5.0

20181

17.7
2.5

3.8
11.0

5.4

3.8
2.3

1.4
16.5

75.1

1.5

59.3
58.7

1.3
4.2
4.3
5.0

20191

Class II FOMC – Restricted (FR)

1. Change from fourth quarter of previous year to fourth quarter of year indicated, unless otherwise indicated.
2. Change, millions.
3. Percent; annual values are for the fourth quarter of the year indicated.
4. Percent difference between actual and potential GDP; a negative number indicates that the economy is operating below potential.
Annual values are for the fourth quarter of the year indicated.
5. Percent change, annual rate.
6. Level, millions; annual values are annual averages.
7. Percent change, annual rate, with inventory valuation and capital consumption adjustments.

3.8
2.3
2.9
5.7
5.5

1.2
17.1

Housing starts6
Light motor vehicle sales6

Income and saving
Nominal GDP5
Real disposable pers. income5
Previous Tealbook5
Personal saving rate3
Previous Tealbook3

-.7
-1.0
-1.0
-1.0
75.0
75.0

Industrial production5
Previous Tealbook5
Manufacturing industr. prod.5
Previous Tealbook5
Capacity utilization rate - mfg.3
Previous Tealbook3

-.1
-.1

.5
4.9
4.9
5.0
5.0

Employment and production
Nonfarm payroll employment2
Unemployment rate3
Previous Tealbook3
Natural rate of unemployment3
Previous Tealbook3

GDP gap4
Previous Tealbook4

Item

2016

Other Macroeconomic Indicators

Authorized for Public Release
September 14, 2016

58.3
61.1
-4.2
-4.2
5.9
5.9
5.9
5.9
72.4
72.4
.6
11.6
4.6
2.6
2.6
5.5
5.5
18.0
12.0
15.2
-.3

Employment-to-Population Ratio2
Employment-to-Population Trend2

GDP gap3
Previous Tealbook3

Industrial production4
Previous Tealbook4
Manufacturing industr. prod.4
Previous Tealbook4
Capacity utilization rate - mfg.2
Previous Tealbook2

Housing starts5
Light motor vehicle sales5

Income and saving
Nominal GDP4
Real disposable pers. income4
Previous Tealbook4
Personal saving rate2
Previous Tealbook2

Page 94 of 100

Corporate profits6
Profit share of GNP2

Gross national saving rate2
Net national saving rate2
16.1
.8

6.8
12.3

3.6
1.7
1.7
5.8
5.8

.6
12.7

2.6
2.6
2.5
2.5
74.4
74.4

-3.7
-3.7

58.5
60.7

2.0
8.7
8.7
5.9
5.9

2011

18.0
2.9

.6
12.0

3.2
5.1
5.1
9.2
9.2

.8
14.4

2.3
2.3
1.7
1.7
74.3
74.3

-3.7
-3.7

58.7
60.3

2.1
7.8
7.8
5.6
5.6

2012

18.2
3.1

4.7
12.0

4.3
-2.8
-2.9
4.7
4.4

.9
15.5

2.0
2.0
.8
.8
74.6
74.6

-2.5
-2.5

58.5
60.2

2.4
7.0
7.0
5.4
5.4

2013

19.2
4.3

6.6
12.4

4.1
4.5
3.6
5.6
4.7

1.0
16.4

3.5
3.5
2.0
2.0
76.0
76.0

-.9
-.9

59.2
60.1

2.8
5.7
5.7
5.1
5.1

2014

18.8
3.9

-11.2
10.7

3.0
3.0
3.3
6.0
5.2

1.1
17.4

-1.6
-1.6
.0
.0
75.4
75.4

.0
.0

59.4
59.9

2.8
5.0
5.0
5.0
5.0

2015

18.2
3.2

7.3
11.1

3.2
2.4
2.8
5.7
5.3

1.2
17.2

-.4
-.4
-.1
.2
74.7
75.0

.2
.1

59.6
59.6

2.3
4.9
4.9
5.0
5.0

2016

18.1
3.2

3.8
11.1

4.2
2.7
2.5
5.6
5.0

1.3
17.0

1.0
1.3
1.0
1.2
74.9
75.3

1.1
1.0

59.7
59.3

2.2
4.5
4.6
5.0
5.0

2017

17.9
2.9

2.9
11.0

4.0
2.3
2.4
5.4
4.7

1.4
16.8

1.2
1.6
1.1
1.5
75.1
75.9

1.5
1.4

59.6
59.0

1.8
4.3
4.3
5.0
5.0

2018

17.7
2.5

3.8
11.0

5.4

3.8
2.3

1.4
16.5

75.1

1.5

59.3
58.7

1.3
4.2
4.3
5.0

2019

Class II FOMC – Restricted (FR)

1. Change, millions.
2. Percent; values are for the fourth quarter of the year indicated.
3. Percent difference between actual and potential GDP; a negative number indicates that the economy is operating below potential.
Values are for the fourth quarter of the year indicated.
4. Percent change.
5. Level, millions; values are annual averages.
6. Percent change, with inventory valuation and capital consumption adjustments.

.8
9.5
9.5
5.9
5.9

2010

Employment and production
Nonfarm payroll employment1
Unemployment rate2
Previous Tealbook2
Natural rate of unemployment2
Previous Tealbook2

Item

Greensheets
Other Macroeconomic Indicators
(Change from fourth quarter of previous year to fourth quarter of year indicated, unless otherwise noted)

Authorized for Public Release
September 14, 2016

Page 95 of 100
-816.1
.7
.4
.4
.1
.2
.1

.6
.4
.4
.1
.1
.2

-778

-653

-661.4

3,544
4,319
1,010
600
410
3,309
-775
275

3,471
4,129
974
588
386
3,155
-658
266

351

700
14
-120

3,407
4,002
-595
-531

.1
.1
.0
.1
.0

-875.9

-778

3,739
4,507
1,033
610
424
3,474
-768
282

350

653
2
-120

3,597
4,132
-535
-542

2018

Fiscal year
2017

.2
.1
.0
.1
.1

-994.8

-870

3,878
4,736
1,041
612
429
3,695
-858
285

349

750
0
-120

3,764
4,394
-630
-646

2019

.5
.4
-.1
.4
.2

-665.0

-662

3,442
4,111
969
587
382
3,142
-668
265

314

251
20
-25

711
956
-245
-245

Q1a

-.1
.0
.0
-.2
.2

-668.2

-661

3,470
4,137
975
586
389
3,162
-668
264

357

8
-43
-25

993
932
61
60

366

216
-9
-24

811
995
-183
-122

.5
.6
.2
.1
.2

-765.1

-750

3,457
4,211
984
590
394
3,227
-754
267

2016
Q2a

.7
.6
.2
.3
.2

-772.0

-749

3,487
4,237
993
593
400
3,244
-750
271

342

220
23
-30

768
981
-213
-204

2017
Q3

352

-44
-8
-30

1,072
990
81
108

351

161
1
-30

843
975
-132
-113

348

248
4
-30

802
1,024
-222
-219

Not seasonally adjusted

.4
.3
.2
.2
.1

-830.0

-803

.4
.5
.1
.2
.1

-.1

-813.4

-770

.4
.4
.1
.2
.1

-848.9

-790

.3
.2
.0
.2
.1

-860.2

-781

Seasonally adjusted annual rates
3,525
3,560
3,606
3,648
4,325
4,325
4,388
4,420
1,009
1,016
1,021
1,026
600
602
604
606
409
413
417
421
3,316
3,310
3,366
3,394
-800
-765
-782
-773
274
277
279
280

345

363
-2
-30

725
1,056
-331
-323

.2
.1
.0
.1
.1

-880.0

-787

3,732
4,510
1,033
610
423
3,476
-777
282

349

366
-1
-30

765
1,099
-334
-340

.1
.3
.0
.1
.0

-.1

-862.8

-758

3,767
4,515
1,036
611
425
3,479
-748
283

350

-67
-1
-30

1,143
1,044
98
108

350

107
1
-30

888
965
-77
-92

.1
.1
.0
.1
.0

-900.5

-786

3,807
4,583
1,038
611
426
3,545
-775
283

2018
Q2

Greensheets

.1
.0
-.1
.1
.0

-924.5

-802

3,843
4,635
1,038
611
427
3,597
-792
283

349

295
0
-30

851
1,116
-265
-268

Class II FOMC – Restricted (FR)

1. Other means of financing include checks issued less checks paid, accrued items, and changes in other financial assets and liabilities.
2. Gross saving is the current account surplus plus consumption of fixed capital of the general government as well as government enterprises.
3. HEB is gross saving less gross investment (NIPA) of the federal government in current dollars, with cyclically sensitive receipts and outlays adjusted to the staff’s measure of potential output and the
natural rate of unemployment. The sign on Change in HEB, as a percent of nominal potential GDP, is reversed. Quarterly figures for change in HEB are not at annual rates.
4. Fiscal impetus measures the contribution to growth of real GDP from fiscal policy actions at the general government level (excluding multiplier effects). It equals the sum of the direct contributions
to real GDP growth from changes in federal purchases and state and local purchases, plus the estimated contribution from real consumption and investment that is induced by discretionary policy
changes in transfers and taxes.
a Actual.

Fiscal indicators
High-employment (HEB)
surplus/deficit3
Change in HEB, percent
of potential GDP
Fiscal impetus (FI),
percent of GDP4
Previous Tealbook
Federal purchases
State and local purchases
Taxes and transfers

NIPA federal sector
Receipts
Expenditures
Consumption expenditures
Defense
Nondefense
Other spending
Current account surplus
Gross investment
Gross saving less gross
investment2

366

1,027
-167
-276

Means of financing:
Borrowing
Cash decrease
Other1

Cash operating balance,
end of period

3,280
3,864
-583
-523

2016

Unified budget
Receipts
Outlays
Surplus/deficit
Previous Tealbook

Item

Staff Projections of Federal Sector Accounts and Related Items
(Billions of dollars except as noted)

Authorized for Public Release
September 14, 2016

1.5
1.5
-.3
.9
-.5
-.1
-1.3
-1.3
3.0
2.4
.0
3.1
4.6
2.9
11.8

Consumer prices 2
Total foreign
Previous Tealbook
Advanced foreign economies
Canada
Japan
United Kingdom
Euro area
Germany
Emerging market economies
Asia
Korea
China
Latin America
Mexico
Brazil

Page 96 of 100

2.0
2.5
1.3
2.2
.2
2.3
1.0
1.1
2.5
1.5
.1
1.6
4.7
3.5
7.0

2.6
2.6
2.3
3.5
1.0
1.3
1.3
1.7
2.8
4.6
3.3
6.6
1.5
2.2
-1.0

GDP aggregates calculated using shares of U.S. exports.
Foreign CPI aggregates calculated using shares of U.S. non-oil imports.

2.1
2.0
1.2
2.3
-.5
.8
1.2
1.2
2.7
2.3
.7
2.3
3.8
2.1
7.5

.9
1.5
.0
-1.6
.7
2.4
1.2
1.7
1.7
5.1
3.2
7.1
-1.1
-.7
-2.2

2.5
2.5
1.4
2.2
.3
2.4
1.2
1.3
3.4
3.0
2.8
3.1
4.2
3.2
6.2

2.4
2.4
1.7
2.2
.8
1.3
1.3
1.7
3.1
4.6
3.1
6.4
1.9
2.3
.5

2.5
2.5
1.5
2.2
.3
2.5
1.3
1.5
3.2
2.8
3.3
2.6
4.2
3.2
5.7

2.6
2.7
2.0
2.6
.8
1.3
1.4
1.6
3.3
4.7
3.4
6.2
2.2
2.3
1.1

2.5
2.5
1.5
2.2
.4
2.4
1.3
1.5
3.2
2.8
3.1
2.5
4.1
3.2
5.4

2.7
2.7
2.0
2.5
.8
1.4
1.7
1.8
3.3
4.7
3.4
6.1
2.2
2.3
1.5

2.4
2.5
1.5
2.0
.5
2.2
1.4
1.5
3.2
2.8
3.1
2.5
4.1
3.2
5.4

2.6
2.7
1.8
2.2
.7
1.5
1.7
1.7
3.4
4.7
3.4
6.0
2.3
2.3
1.8

2.5
2.5
1.5
2.0
.6
2.2
1.4
1.5
3.2
2.8
3.1
2.5
4.1
3.2
5.4

2.6
2.7
1.8
2.1
.7
1.6
1.7
1.7
3.4
4.7
3.4
6.0
2.4
2.4
2.0

2.5
2.5
1.5
2.0
.7
2.0
1.4
1.5
3.2
2.8
3.0
2.5
4.1
3.2
5.4

2.6
2.7
1.8
2.0
.8
1.7
1.8
1.6
3.4
4.6
3.4
5.9
2.4
2.4
2.1

2.5
2.5
1.6
2.0
.9
2.0
1.4
1.6
3.2
2.8
3.0
2.5
4.1
3.2
5.4

2.6
2.7
1.8
2.0
.8
1.7
1.8
1.6
3.4
4.6
3.4
5.9
2.4
2.4
2.1

2.5
2.5
1.6
2.0
1.0
2.0
1.5
1.6
3.2
2.8
3.0
2.5
4.1
3.2
5.4

2.6
2.7
1.7
1.7
.7
1.8
1.8
1.6
3.4
4.6
3.4
5.8
2.4
2.4
2.1

2.5
2.5
1.6
2.0
1.1
2.0
1.5
1.8
3.2
2.8
3.0
2.5
4.1
3.2
5.4

2.6
2.7
1.7
1.8
.7
1.8
1.8
1.5
3.4
4.6
3.4
5.8
2.4
2.4
2.1

Class II FOMC – Restricted (FR)

1 Foreign

2.5
2.7
2.3
2.5
2.1
1.8
2.1
2.9
2.6
4.1
2.1
6.5
1.0
2.0
-1.7

Real
Total foreign
Previous Tealbook
Advanced foreign economies
Canada
Japan
United Kingdom
Euro area
Germany
Emerging market economies
Asia
Korea
China
Latin America
Mexico
Brazil

GDP 1

Measure and country

---- --------------------------------------------------Projected---------------------------------------------------2016
2017
2018
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

Foreign Real GDP and Consumer Prices: Selected Countries
(Quarterly percent changes at an annual rate)

Greensheets

Authorized for Public Release
September 14, 2016

Page 97 of 100

3.4
3.4
2.2
2.7
-.3
4.6
2.9
2.6
4.3
4.4
3.9
4.6
4.0
3.5
6.7

Consumer prices 2
Total foreign
Previous Tealbook
Advanced foreign economies
Canada
Japan
United Kingdom
Euro area
Germany
Emerging market economies
Asia
Korea
China
Latin America
Mexico
Brazil
2.3
2.3
1.3
1.0
-.2
2.6
2.3
1.9
3.1
2.6
1.7
2.0
4.3
4.1
5.6

2.3
2.3
.2
.7
.0
1.3
-1.0
.2
4.3
5.7
2.1
8.0
3.3
3.4
2.6
2.4
2.4
1.0
1.0
1.4
2.1
.8
1.4
3.4
3.1
1.1
2.9
4.1
3.6
5.8

2.8
2.8
2.2
3.1
2.1
2.4
.7
1.6
3.4
5.3
3.5
7.6
1.6
1.1
2.5

2013

2 Foreign

2.0
2.0
1.1
1.9
2.5
.9
.2
.4
2.7
1.8
1.0
1.5
4.9
4.2
6.5

2.5
2.5
1.8
2.4
-.9
3.5
1.2
1.6
3.2
4.9
2.7
7.1
1.8
2.6
-.7

2014

Greensheets

Foreign GDP aggregates calculated using shares of U.S. exports.
CPI aggregates calculated using shares of U.S. non-oil imports.

3.2
3.2
1.8
3.1
.3
1.3
.5
2.4
4.6
5.1
2.9
8.7
4.1
4.2
2.6

Real GDP 1
Total foreign
Previous Tealbook
Advanced foreign economies
Canada
Japan
United Kingdom
Euro area
Germany
Emerging market economies
Asia
Korea
China
Latin America
Mexico
Brazil

2012

1.5
1.5
.5
1.3
.3
.1
.2
.2
2.2
1.5
1.1
1.5
3.6
2.3
10.4

1.8
1.7
1.1
.3
.8
1.8
2.0
1.3
2.5
4.4
3.1
6.8
1.0
2.4
-5.9

2015

2.0
2.1
.9
1.9
-.1
1.4
.5
.6
2.9
2.3
.9
2.5
4.3
2.9
8.1

2.1
2.3
1.6
1.6
1.1
1.7
1.5
2.0
2.6
4.6
2.9
6.6
.8
1.4
-1.1
2.5
2.5
1.5
2.1
.4
2.3
1.3
1.5
3.2
2.8
3.1
2.6
4.1
3.2
5.5

2.6
2.7
1.9
2.3
.8
1.4
1.6
1.7
3.3
4.7
3.4
6.1
2.3
2.3
1.6
2.5
2.5
1.6
2.0
.9
2.0
1.4
1.6
3.2
2.8
3.0
2.5
4.1
3.2
5.4

2.6
2.7
1.8
1.9
.8
1.8
1.8
1.6
3.4
4.6
3.4
5.8
2.4
2.4
2.1

2.6
2.6
1.8
2.0
2.3
1.9
1.5
1.8
3.2
2.9
3.0
2.5
4.0
3.2
5.0

2.6
2.7
1.6
1.7
.0
1.8
1.8
1.5
3.5
4.5
3.3
5.6
2.7
2.7
2.2

--------------------Projected--------------------2016
2017
2018
2019

Class II FOMC – Restricted (FR)

2011

Measure and country

Foreign Real GDP and Consumer Prices: Selected Countries
(Percent change, Q4 to Q4)

Authorized for Public Release
September 14, 2016

Page 98 of 100

-460.4
-460.4
-3.0
-3.0
-548.6
229.0
298.6
-69.5
-140.8

2011

-512.1
-498.7
-2.8
-2.7
-500.9
162.1
234.4
-72.3
-173.3

2012

-473.9
-527.7
-2.5
-2.8
-507.6
195.1
266.2
-71.0
-161.4

-446.5
-446.5
-2.8
-2.8
-536.8
224.4
293.8
-69.4
-134.2

-468.1
-483.3
-2.5
-2.6
-501.0
192.1
257.5
-65.4
-159.3

-366.4
-366.4
-2.2
-2.2
-461.9
228.4
296.3
-67.9
-132.9

2013

-392.1
-392.1
-2.3
-2.3
-490.2
234.3
289.0
-54.8
-136.1

2014

2015

-568.8
-640.7
-2.9
-3.3
-583.6
179.0
289.6
-110.6
-164.2

-463.0
-463.0
-2.6
-2.6
-500.4
193.4
265.4
-72.0
-156.0

2016

-596.8
-671.5
-3.0
-3.4
-601.0
164.4
290.8
-126.4
-160.2

-486.4
-512.2
-2.6
-2.8
-508.6
185.7
256.9
-71.1
-163.6

Billions of dollars

-535.9
-601.2
-2.8
-3.2
-567.0
189.2
285.6
-96.4
-158.1

Billions of dollars, s.a.a.r.

-532.5
-598.4
-2.8
-3.2
-556.4
193.0
277.7
-84.7
-169.1

Annual Data

-491.4
-539.2
-2.6
-2.9
-524.8
193.7
269.4
-75.8
-160.2

-632.9
-719.7
-3.2
-3.6
-624.4
149.6
310.9
-161.4
-158.1

-654.1
-743.4
-3.2
-3.7
-632.1
142.2
323.4
-181.1
-164.2

-673.3
-759.9
-3.3
-3.7
-643.7
130.7
332.2
-201.4
-160.2

-558.5
-627.9
-2.9
-3.3
-577.0
181.4
285.9
-104.6
-162.9

-650.3
-738.1
-3.2
-3.7
-631.2
143.8
315.6
-171.8
-162.9

-718.8
-814.2
-3.4
-3.9
-669.0
113.2
365.6
-252.5
-162.9

-------------Projected------------2017
2018
2019

-641.1
-729.5
-3.2
-3.7
-624.8
152.9
296.1
-143.2
-169.1

Class II FOMC – Restricted (FR)

U.S. current account balance
Previous Tealbook
Current account as percent of GDP
Previous Tealbook
Net goods & services
Investment income, net
Direct, net
Portfolio, net
Other income and transfers, net

---- --------------------------------------------------Projected---------------------------------------------------2016
2017
2018

Quarterly Data

U.S. Current Account

Greensheets

Authorized for Public Release
September 14, 2016

Authorized for Public Release
Class II FOMC – Restricted (FR)

September 14, 2016

Abbreviations
AFE

advanced foreign economy

BEA

Bureau of Economic Analysis, Department of Commerce

BOE

Bank of England

BOJ

Bank of Japan

certificate of deposit

C&I

commercial and industrial

CMBS

commercial mortgage-backed securities

commercial paper

CRE

commercial real estate

Desk

Open Market Desk

DSGE

dynamic stochastic general equilibrium

ECB

European Central Bank

ECI

employment cost index

E&I

equipment and intangibles

EME

emerging market economy

European Union

FOMC

Federal Open Market Committee; also, the Committee

foreign exchange

GDP

gross domestic product

GFC

Global Financial Crisis

ISM

Institute for Supply Management

LIBOR

London interbank offered rate

LMCI

labor market conditions index

Michigan survey

University of Michigan Surveys of Consumers

MMF

money market fund

OIS

overnight index swap

ON RRP

overnight reverse repurchase agreement

PCE

personal consumption expenditures
Page 99 of 100

Authorized for Public Release
Class II FOMC – Restricted (FR)

September 14, 2016

PDFP

private domestic final purchases

PMI

purchasing managers index

REIT

real estate investment trust

repo

repurchase agreement

SCOOS

Senior Credit Officer Opinion Survey on Dealer Financing Terms

SOMA

System Open Market Account

S&P

Standard & Poor’s

TFP

total factor productivity

TIPS

Treasury Inflation-Protected Securities

Page 100 of 100

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, September 20-21, 2016 : Tealbook A

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