Meeting of the Federal Open Market Committee
September 24, 2002 Presentation Materials -- Text Version
Presentation Materials (914 KB PDF)
Pages 106 to 115 of Transcript
Appendix 1: Materials used by Mr. Kos
Page 1
Top panel
Title: U.S. Current Deposit Rates and Rates Implied by Traded Forward Rate Agreements
Series: U.S. LIBOR fixing, 3-month forward rate agreement, 6-month forward rate agreement, 9-month forward rate agreement
Horizon: June 3, 2002 - September 20, 2002
Description: U.S. deposit rates and rates implied by traded forward rate agreements declined.
Source: Bloomberg
Middle-left panel
Title: 2- and 5-Year Treasury Yields
Series: 2- and 5-year Treasury yields
Horizon: June 3, 2002 - September 20, 2002
Description: 2- and 5-year Treasury yields declined over the period.
Source: Bloomberg
Middle-right panel
Title: 10- and 30-year Treasury Yields
Series: 10- and 30-year Treasury yields
Horizon: June 3, 2002 - September 20, 2002
Description: 10- and 30-year Treasury yields declined over the period.
Source: Bloomberg
Bottom panel
Title: Mortgage Bankers Association Refinancing Index and Short-Dated Swaption Implied Volatility
Series: MBS refinancing index and 3-month option-implied volatility on 10-year swaps
Horizon: January 1, 2001 - September 20, 2002
Description: The MBS refinancing index and 3-month option-implied volatility on 10-year swaps rise in the end of 2001 and again in the final months displayed on the chart.
Source: Bloomberg
Page 2
Top panel
Title: Daily U.S. Investment Grade Corporate Option-Adjusted Spreads
Series: Lehman Brothers investment-grade corporate option-adjusted spreads
Horizon: January 1, 2002 - September 20, 2002
Description: Investment-grade corporate option-adjusted spreads rose in July and August.
Source: Lehman Brothers
Middle panel
Title: U.S. Investment Grade Fixed Rate Non-144a Weekly Issuance
Series: Lehman Brothers reported issuance of U.S. investment grade fixed rate non-144a debt
Horizon: January 4, 2002 - September 20, 2002
Description: The 4-week weekly average of issuance increased since mid-August.
Source: Lehman Brothers
Bottom panel
Title: Monthly U.S. Investment Grade Corporate Debt Excess Returns
Series: Spread between returns of corporate bonds relative to duration equivalent Treasuries
Horizon: August 31, 1992 - August 30, 2002
Description: Spread between returns of corporate bonds relative to duration equivalent Treasuries reached the lowest level over this period in 2002.
Source: Lehman Brothers
Page 3
Top panel
Title: Japanese Equity Indices
Series: Topix bank sub-index, the Topix index, and the Nikkei index
Horizon: May 1, 2002 - September 20, 2002
Description: The Topix banks sub-index increases sharply after September 4, 2002.
Source: Bloomberg
Middle-left panel
Title: 10-year Japanese Government Bond Yield
Series: 10-year JGB
Horizon: May 1, 2002 - September 20, 2002
Description: 10-year JGB yields rose sharply since the September 10, 2002 Q2 GDP revision.
Source: Bloomberg
Middle-right panel
Title: Japanese Bank Deposits and Loans
Series: Japanese bank loans and deposits
Horizon: January 1993 to August 2002
Description: Total Japanese bank loans declined while bank deposits increased over the period.
Source: BOJ
Bottom panel
Title: Japanese Government Yield Curves
Series: Japanese Government Yield Curve
Horizon: March 1, 2001; September 20, 2001; September 20, 2002
Description: The Japanese government yield curve was steep.
Source: Bloomberg
Page 4
Top panel
Title: Euro-Area Current Deposit Rates and Rates Implied by Traded Forward Rate Agreeemnts
Series: Euro-area LIBOR fixing, 3-month forward rate agreement, 6-month forward rate agreement, 9-month forward rate agreement.
Horizon: June 3, 2002 - September 20, 2002
Description: The Euro-area deposit rates and rates implied by traded forward rate agreements declined over the period.
Source: Bloomberg
Middle panel
Title: U.S. Versus European Equity Indices
Series: The Dow Jones Euro Stoxx index; Dow Jones Euro Stoxx Insurance sub-index; S&P 500; S&P 500 Insurance sub-index.
Horizon: June 3, 2002 - September 20, 2002
Description: European equity indices declined more than the comparative U.S. indices.
Source: Bloomberg
Bottom panel
Title: 10-Year German Government Bund Yield
Series: 10-Year German Government Bund
Horizon: June 3, 2002 - September 20, 2002
Description: The yield on the German 10-year government bund declined over the period.
Source: Bloomberg
Page 5
Top panel
Title: Currency Component of M1 (s.a.) 1-Month Annualized Growth Rate
Series: Currency component of M1 (s.a.).
Horizon: September 2000 - September 2002
Description: The rate of Currency growth was expected to slow significantly in September 2002.
Appendix 2: Materials used by Mr. Reinhart
Exhibit 1
Exhibit 1 includes six charts and tables that provide information on financial market reactions to the most recent FOMC announcement, money policy expectations, and interest rate developments over the intermeeting period.
Top panel
Market Reaction to August FOMC Announcement1
Top-left panel
Interest Rate Futures
A bar chart displays changes in implied rates on interest rate futures at various horizons from the front contract through August 2003 in response to the most recent FOMC announcement in a window from 2:00 pm to 2:30 pm. The chart conveys the notion that the switch in the risk assessment and the associated words seemed to suggest a downward revision to the economic outlook consistent with the federal funds rate being 20 basis points lower over the next two years than previously anticipated.
Top-right panel
Treasury Yields
A bar chart that similarly shows the reaction to two-, five-, and ten-year Treasury yields over the same period. The chart shows that these rates declined between 5 and 15 basis points, with more of the decline at shorter maturities.
1. Change in market quotes in a window bracketing the FOMC announcement (2:00 pm to 2:30 pm). Return to text
Middle-left panel
Ten-Year Treasury Yield
A line chart of the ten-year Treasury yield plotted from August 1 through September 23. The horizontal axis ranges from 4.0 to 4.8 percent. Vertical lines in the chart sequentially denote the dates of the FOMC announcement, the Recertification date, the new home sales data release, durable goods, ISM manufacturing, ISM Non-manufacturing, the employment report, the 9/11 anniversary, and the Chairman's testimony. The chart illustrates that these economic data releases were mixed.
Middle-right panel
Change Since August 12
| basis points | |
|---|---|
| Total | -49 |
| Due to Econ Releases | 0 |
The total change since August 12 in ten-year yields was -49 basis points over the intermeeting period, but the net movement in ten-year yields around the data releases shown in the middle-left panel was 0 basis points.
Bottom-left panel
Expected Federal Funds Rates
A line chart of the expected federal funds rate--estimated from federal funds and Eurodollar futures with an allowance for term premium and other adjustments--on August 12, 2002 and September 23, 2002. The maturities extent from the September 2002 contract though January 2005, and the chart shows that investors marked down the expected funds rate by the beginning of 2005 from about 3.60 to 3.00 percent.
Bottom-right panel
Treasury Yield Curve
A line chart that shows the Treasury yield curve--smoothed from off-the-run Treasury coupon securities with yields expressed as notional par Treasury securities with semi-annual coupons--on August 12, 2002 and September 23, 2002. The chart conveys that the yield curve shifted down in a fairly parallel fashion over the intermeeting period.
Exhibit 2
(Bluebook Chart 6)
Policymaker Perfect Foresight Strategy for Monetary Policy
Exhibit 2 includes four charts that correspond to Chart 6 in the Bluebook, which reports on the "policymaker perfect foresight" strategy simulations for monetary policy. These simulations take the staff outlook and the FRB/US model as assured representations of how the world will evolve over the next five years and assume that policymakers care equally about deviations of unemployment from its natural rate and core inflation from an assumed target.
Top-left panel
Nominal Federal Funds Rate
A chart of three lines depicting the nominal federal funds rate path under the baseline assumption, a one percent inflation goal, and a 1½ percent inflation goal. The horizontal axis ranges from 2001 through the end of the 2007, and the vertical axis runs from zero to 7 percent. For the remainder of 2003, the baseline path lies above the paths implied by the 1 percent and the 1½ percent inflation goals, respectively. At the end of the forecast horizon, the funds rate under the 1½ percent goal is greater than that for the 1 percent objective.
Top-right panel
Real Federal Funds Rate1
A chart of three lines depicting the real federal funds rate path under the baseline assumption, a one percent inflation goal, and a 1½ percent inflation goal. The horizontal axis ranges from 2001 through the end of the 2007, and the vertical axis runs from -2 to 5 percent. For the remainder of 2003, the baseline path lies above the paths implied by the 1 percent and 1½ percent inflation goals, respectively. From the middle of 2004 through the end of 2007, the funds rates under 1½ percent and 1 percent goal are largely similar and increase to a level just under 2.5 percent at the end of the forecast.
1. The real federal funds rate is calculated as the quarterly average nominal funds rate minus the four-quarter lagged core PCE inflation rate as a proxy for inflation expectations. Return to text
Middle panel
Civilian Unemployment Rate
A chart of three lines depicting the civilian unemployment rate under the baseline assumption, a one percent inflation goal, and a 1½ percent inflation goal. The horizontal axis ranges from 2001 through the end of the 2007, and the vertical axis runs from 3.5 to 6.5 percent. For the entire forecast period, the baseline path lies above the paths implied by the 1 percent and 1½ percent inflation goals, respectively.
Bottom panel
PCE Inflation (ex. food and energy)
A chart of three lines depicting the core PCE rate, excluding food and energy and expressed as a four-quarter percent change, under the baseline assumption, a one percent inflation goal, and a 1½ percent inflation goal. The horizontal axis ranges from 2001 through the end of the 2007, and the vertical axis runs from 1 to 2 percent. For the entire forecast period, the path implied by the 1½ inflation goal lies above that implied by the 1 percent goal, which in turn is greater than the baseline.
Exhibit 3
(Bluebook Chart 5)
Actual Real Federal Funds Rate and Range of Estimated Equilibrium Real Rates
Top panel
A line chart--Chart 5 in the Bluebook--that includes the actual real federal funds rate and a range of estimated equilibrium real rates from 1990 through 2002 at a quarterly frequency. The vertical axis ranges from -1 to 5 percent. A dotted horizontal line shows the historical average: 2.74 (1966:Q1-2002:Q2). The lines include the actual real funds rate as well as a TIIS-based estimate. The shaded range represents the maximum and the minimum values each quarter of six estimates of the equilibrium real federal funds rate based on a statistical filter and the FRB/US model. Real federal funds rates employ four-quarter lagged core PCE inflation as a proxy for inflation expectations, with the staff projections used for 2002:Q3. The actual real funds rate is notably below zero as well as the TIIS-based estimate for the most recent year of the sample period, and both series lie outside the shaded region.
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