The Federal Reserve Board eagle logo links to home page

Meeting of the Federal Open Market Committee
March 18, 2008 Presentation Materials -- Text Version

Presentation Materials (PDF)

Pages 114 to 127 of the Transcript

Appendix 1: Materials used by Mr. Dudley

Class II FOMC - Restricted FR

Page 1

Top panel
(1) Collateral Haircuts Moving Higher

February 1, 2008 - March 10, 2008
Haircuts by Asset Class
Maturity
Overnight 1-Month 3-Month
COLLATERAL Date Average High Low Average High Low Average High Low
Treasury 10-Mar 0.3% 1.5% 0.0% 0.3% 1.5% 0.0% 0.4% 1.5% 0.0%
3-Mar 0.2% 1.5% 0.0% 0.3% 1.5% 0.0% 0.4% 1.5% 0.0%
1-Feb 0.2% 1.5% 0.0% 0.3% 1.5% 0.0% 0.4% 1.5% 0.0%
Agency Debt 10-Mar 0.7% 2.0% 0.0% 1.2% 5.0% 0.0% 1.3% 5.0% 0.0%
3-Mar 0.6% 2.0% 0.0% 0.9% 3.0% 0.0% 1.0% 3.0% 0.0%
1-Feb 0.6% 2.0% 0.0% 0.9% 3.0% 0.0% 1.0% 3.0% 0.0%
Agency MBS 10-Mar 5% 7% 3% 5% 8% 3% 7% 10% 3%
3-Mar 3% 3% 3% 3% 3% 3% 4% 5% 3%
1-Feb 3% 3% 2% 3% 3% 3% 4% 5% 3%
Non-agency MBS
Prime 10-Mar 16% 20% 10% 18% 20% 12% 17% 18% 15%
3-Mar 16% 18% 15% 16% 18% 15% 18% 18% 18%
1-Feb 11% 15% 5% 10% 18% 4% 12% 18% 7%
Alt-A 10-Mar 23% 33% 18% 25% 33% 18%      
3-Mar 14% 18% 10% 16% 20% 10%      
1-Feb 11% 13% 10% 11% 13% 10%      
Corporate Debt
High Grade 10-Mar 12% 25% 5% 16% 25% 5% 18% 25% 15%
3-Mar 11% 25% 3% 13% 25% 3% 18% 25% 15%
1-Feb 10% 25% 3% 11% 25% 3% 14% 25% 3%
High Yield 10-Mar 30% 70% 10% 32% 70% 15% 36% 70% 25%
3-Mar 26% 70% 9% 27% 70% 10% 35% 70% 20%
1-Feb 25% 70% 6% 26% 70% 10% 28% 70% 10%

Source: Survey of 11 Hedge Funds and 1 REIT

Bottom panel
(2)

Title: Mortgage Rates
Series: Fannie Mae current coupon mortgage yield and option-adjusted spread and 10-year Treasury yield
Horizon: January 1, 2008 - March 17, 2008
Description: Fannie Mae current coupon mortgage yields and option-adjusted spreads, and 10-year Treasury yields, decline after FOMC announcements.

Note: Vertical dotted lines denote FOMC announcements on 3/7 and 3/11

Source: Bloomberg and Lehman Brothers


Page 2

Top panel
(3)

Title: Spread between Jumbo and Conforming Mortgage Rates Remains Wide
Series: Jumbo mortgage rates, conforming mortgage rates, and spread
Horizon: January 1, 2007 - March 14, 2008
Description: The spread between jumbo and conforming rates remains wide.

Source: Bloomberg

Middle panel
(4)

Title: Prices Across ABX Tranches Decline Further
Series: Price on AAA, AA, A, BBB, and BBB- rated tranches of the ABX 07-01 vintage
Horizon: January 1, 2007 - March 14, 2008
Description: Prices on AAA, AA, A, BBB, and BBB- rated tranches of the ABX 07-01 vintage have continued to decline.

Source: JP Morgan

Bottom panel
(5)

Title: Fannie Mae and Freddie Mac's CDS Spreads Rise and Equity Prices Decline
Series: Credit default swap spreads and equity prices for Fannie Mae and Freddie Mac
Horizon: January 1, 2007 - March 17, 2008
Description: While credit default swap spreads widened for Fannie Mae and Freddie Mac, their equity prices declined.

Source: Markit and Bloomberg


Page 3

Top panel
(6)

Title: Corporate Credit Option-Adjusted Spreads and Yields
Series: Investment grade and high-yield corporate debt spreads and yields
Horizon: January 1, 2007 - March 14, 2008
Description: Investment grade and high-yield debt option-adjusted spreads widened while yields on high-yield debt and investment grade debt rose.

Source: Bloomberg

Middle panel
(7)

Title: Global Credit Default Swap Spreads Widen
Series: ITRAXX Crossover Series 7 and Baa CDS spread
Horizon: March 1, 2007 - March 14, 2008
Description: ITRAXX Crossover Series 7 spread and Baa CDS spread have continued to widen.

Source: Bloomberg

Bottom panel
(8)

Title: U.S. Equity Indices Decline
Series: S&P 500 index, Nasdaq index, and S&P 500 financials index
Horizon: August 1, 2007 - March 17, 2008
Description: Financial underperforms against U.S. equity indices.

Source: Bloomberg


Page 4

Top panel
(9)

Title: Bank Term Funding Pressures Revive: One-Month LIBOR - OIS Spread
Series: Spreads between one-month Libor rates and one-month interest rate swap rates for U.S., UK, and Euro-Area
Horizon: August 1, 2007 - March 17, 2008
Description: The spreads between one-month Libor rates and one-month interest rate swap rates for U.S., UK, and Euro-Area have risen.

Source: Bloomberg

Middle panel
(10)

Title: Three-Month LIBOR - OIS Spread
Series: Spreads between three-month Libor rate and three-month interest rate swap rates for U.S., UK, and Euro-Area
Horizon: August 1, 2007 - March 17, 2008
Description: The spreads between three-month Libor rate and three-month interest rate swap rates for U.S., UK, and Euro-Area have risen.

Source: Bloomberg


Page 5

Top panel
(11) Federal Reserve Term Auction Facility Results

Federal Reserve Term Auction Facility:
Auction
Settlement		 Term Amount Minimum
Bid Rate		 Stop-out
Rate		 Propositions Bid/Cover Bidders
12/20/2007 28 Days $20 b 4.17% 4.65% $61.6 b 3.08 93
12/27/2007 35 Days $20 b 4.15% 4.67% $57.7 b 2.88 73
1/17/2008 28 Days $30 b 3.88% 3.95% $55.5 b 1.85 56
1/31/2008 28 Days $30 b 3.10% 3.12% $37.5 b 1.25 52
2/14/2008 28 Days $30 b 2.86% 3.01% $58.4 b 1.95 66
2/28/2008 28 Days $30 b 2.81% 3.08% $68.0 b 2.27 72
3/13/2008 28 Days $50 b 2.39% 2.80% $92.6 b 1.85 82

Source: Federal Reserve Board

Bottom panel
(12)

Title: Composition of Federal Reserve's Balance Sheet
Series: Federal Reserve's permanent purchases, term auction facility, FX swaps, long-term RPS, TSLF, term discount window borrowing, single-tranche repo, and short-term RPs
Horizon: July 1, 2007 - April 30, 2008
Description: Composition of Federal Reserve's balance sheet changes as it introduces new policy actions.

*RPs with an original maturity of at least 7 days are long-term.

Note: The sum of all components equals net autonomous factors plus reserve balances

Source: Federal Reserve Bank of New York


Page 6

Top panel
(13)

Title: Commodity Prices Continue to Rise
Series: GSCI spot, energy, agriculture, and industrial metals indices
Horizon: January 1, 2007 - March 17, 2008
Description: GSCI spot, energy, agriculture, and industrial metals indices continue to rise.

Source: Bloomberg

Middle panel
(14)

Title: Dollar Weakens
Series: Yen-USD, Euro-USD, and broad trade-weighted dollar
Horizon: January 1, 2006 - March 17, 2008
Description: Since mid-June 2007, the U.S. dollar has softened against the Euro and Japanese Yen. Consistent with this, the broad trade-weighted dollar has also been declining.

Source: Bloomberg and Federal Reserve Board

Bottom panel
(15)

Title: Chinese Yuan 12-Month Implied Appreciation
Series: Chinese Yuan 12-Month implied appreciation
Horizon: January 1, 2007 - March 17, 2008
Description: Chinese Yuan 12-Month implied appreciation increases.

Source: Reuters


Page 7

Top panel
(16)

Title: TIPS Implied Average Rate of Inflation: 5-10 Year Horizon
Series: Federal Reserve Board's 5-10 Year horizon TIPS inflation compensation and Barclays' 5-10 Year horizon TIPS inflation compensation
Horizon: August 1, 2007 - March 14, 2008
Description: TIPS inflation compensation over a 5-10 year horizon has increased significantly since the December FOMC meeting as measured by both the Federal Reserve Board and Barclays. Recently, TIPS inflation compensation over a 5-10 year horizon has declined modestly.

Source: Federal Reserve Board and Barclays Capital

Middle panel
(17)

Title: Fed Funds Futures Curve Shifts Down
Series: Fed funds futures curve as of 12/10/2007, 1/29/2008, and 3/17/2008
Horizon: December 10, 2007 - March 17, 2008
Description: The fed funds futures curve has shifted lower since the January FOMC meeting.

Source: Bloomberg

Bottom panel
(18)

Title: Eurodollar Futures Curve Also Shifts Lower
Series: Eurodollar futures curve as of 12/10/2007, 1/29/2008, and 3/17/2008
Horizon: December 10, 2007 - March 17, 2008
Description: The Eurodollar futures curve has steepened and shifted lower since the January FOMC meeting.

Source: Bloomberg


APPENDIX: Reference Exhibits

Page 8

Top panel
(19)

Title: Implied Volatility Increases
Series: VIX index, MOVE index, 1-month Euro-Dollar volatility index, and 1-month Dollar-Yen volatility index
Horizon: January 1, 2007 - March 17, 2008
Description: During the intermeeting period, implied volatility across asset classes has increased.

Source: Bloomberg

Middle panel
(20)

Title: Treasury Yield Curve Shifts Lower and Continues to Steepen
Series: Constant maturity Treasury yield curve as of 12/11/2007, 1/29/2008, and 3/17/2008
Horizon: December 11, 2007 - March 17, 2008
Description: The Treasury yield curve has shifted lower and steepened since the last FOMC meetings.

Source: Bloomberg

Bottom panel
(21)

Title: 10-Year Treasury Inflation Protected and Nominal Treasury Yields
Series: 10-Year nominal Treasury yield and 10-Year inflation protected Treasury yield
Horizon: January 1, 2007 - March 17, 2008
Description: Both nominal and inflation protected Treasury yields have declined since the last FOMC meeting.

Source: Bloomberg


Page 9

Top panel
(22)

Title: GC Repo Market
Series: GC Treasury, agency, and agency MBS repo rates
Horizon: January 1, 2007 - March 17, 2008
Description: Since November 2007, GC Treasury repo rates have traded with a wider spread to GC agency and agency MBS repo.

Source: Federal Reserve Bank of New York

Middle panel
(23)

Title: Probability Distribution on Eurodollar Futures Contract
Series: Probability distribution on Eurodollar futures contract as of 1/29/2008 and 3/14/2008
Horizon: January 29, 2008 - March 14, 2008
Description: Since the January FOMC meeting, the probability of a policy rate cut has increased.

Source: CME Options

Bottom panel
(24)

Title: Probabilities for Policy Rate Outcomes for March FOMC Meeting
Series: Probabilities for a 2.00, 2.25, 2.50, or 2.75 percent target rate at March FOMC meeting
Horizon: February 1, 2008 - March 14, 2008
Description: In the days leading up to the FOMC meeting, there was an increase in probabilities for a 2.00 target rate at the March 18 FOMC meeting.

Source: Cleveland Fed


Page 10

Top panel
(25)

Title: Distribution of Expected Policy Target Among Primary Dealers Prior to March 18 FOMC Meeting
Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by quarter, and market rate for policy expectation by quarter as of 3/10/2008
Horizon: 2008:Q1 - 2009:Q4
Description: There was less dispersion regarding where dealers expect the policy rate to be in the near term as compared to the January 2008 policy survey. Dealers on average expect higher rates than what is currently priced into Eurodollar futures for 2008.

Source: Dealer Policy Survey

Middle panel
(26)

Title: Distribution of Expected Policy Target Among Primary Dealers Prior to January 29-30 FOMC Meeting
Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by quarter, and market rate for policy expectation by quarter as of 1/23/2008
Horizon: 2008:Q1 - 2009:Q4
Description: Compared to the March policy survey, there is more dispersion of policy rate expectation for 2008 and 2009.

Source: Dealer Policy Survey



Appendix 2: Materials used by Mr. Madigan

Material for FOMC Briefing on Monetary Policy Alternatives
Brian Madigan
March 18, 2008

Class I FOMC - Restricted Controlled (FR)

Table 1:
Alternative Language for the March 18, 2008 FOMC Announcement

March 18, 2008
[Note: In Appendix 2, Table 1, strong emphasis (bold) has been added to indicate underlined red text in the original document. Emphasis (italic or strike-through) indicates underlined blue text or strike-through blue text (respectively) in the original document. Exception: On the first row of Rationale under Alternative D, emphasis indicates underlined normal text in the original document.]
Alternative A Alternative B Alternative C Alternative D
Policy
Decision		 1. The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-¼ percent. The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 2-½ percent. The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2-¾ percent. The Federal Open Market Committee decided today to keep its target for the federal funds rate at 3 percent.
Rationale 2. Recent information indicates that the outlook for economic activity has weakened further [begin strike text] and that downside risks persist [end strike text]. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely [begin strike text] to continue [end strike text] to weigh on economic growth over the next few quarters. Recent information indicates that the outlook for economic activity has weakened further [begin strike text] and that downside risks persist [end strike text]. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely [begin strike text] to continue [end strike text] to weigh on economic growth over the next few quarters. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to continue to weigh on economic growth. Recent policy actions should help to promote moderate growth over time, but downside risks to growth remain. Growth in consumer spending has slowed, labor markets have softened, and financial markets remain under considerable stress. Although downside risks to growth remain, recent policy actions should help to promote moderate growth over time.
3. Inflation has been elevated, and some [begin strike text] measures [end strike text] indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully. Inflation has been elevated, and some [begin strike text] measures [end strike text] indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully. Inflation has been elevated, and upward pressure on inflation could result from several factors, including further increases in energy, commodity, and other import prices. Although the Committee expects inflation to moderate in coming quarters, the upside risks to the outlook for inflation have increased. The Committee will continue to monitor inflation developments carefully. Inflation has been elevated, and upward pressure on inflation could result from several factors, including further increases in energy, commodity, and other import prices. Although the Committee expects inflation to moderate in coming quarters, the upside risks to the outlook for inflation have increased. The Committee will continue to monitor inflation developments carefully.
Assessment
of Risk		 4. Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, [begin strike text] the Committee judges that the [end strike text] downside risks to growth remain [begin strike text] outweigh the upside risks to inflation [end strike text]. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability. Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks. The Committee judges that the risks to growth outweigh the risks to inflation, particularly in light of stresses in financial markets. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address the evolving risks. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to promote price stability and sustainable economic growth.

Return to topReturn to top


Home | Monetary policy | FOMC | FOMC transcripts
Accessibility | Contact Us
Last update: February 21, 2014