---

Meeting of the Federal Open Market Committee
December 15-16, 2008 Presentation Materials -- Text Version

Presentation Materials (PDF)

Pages 238 to 284 of the Transcript

Appendix 1: Materials used by Mr. Dudley

Class II FOMC - Restricted FR

Page 1

Top panel
(1)

Title: Global Equity Indices Decline After Lehman Brothers Bankruptcy
Series: S&P 500 Index, DJ Euro Stoxx Index, Japan Topix Index, MSCI Emerging Markets Index
Horizon: August 1, 2007 - December 12, 2008
Description: Global equity indices decline after Lehman Brothers Holding files for bankruptcy on September 14, 2008.

Source: Bloomberg

Middle panel
(2)

Title: High Yield Corporate Bond Yield Increases
Series: Corporate Bond Index Yield to Worst
Horizon: January 1, 2008 - December 11, 2008
Description: The high yield corporate bond index yield to worst increased sharply after Lehman Brothers Holding filed for bankruptcy on September 14, 2008.

Source: JPMorgan Chase

Page 2

Top panel
(3)

Title: Asset-Backed Security Spreads Widen
Series: AAA-Rated Spreads to 1-Month Libor for 3-Year Auto ABS, 5-Year Credit Card ABS, and 3-Year FFELP Student Loan ABS
Horizon: August 1, 2007 - December 12, 2008
Description: Asset-backed security spreads widen.

Source: JPMorgan Chase

Middle panels
(4)

Title: Commercial Mortgage-Backed Security Market Deteriorates
Series: Two panels: AAA-Rated 10-Year Fixed Rate CMBS Spread to Swaps*; Implied Prices of Series 1-5 CMBX
Horizon: August 1, 2007 - December 11, 2008
Description: The commercial mortgage-backed security market deteriorates.

* Index composed of post-2003 vintage CMBS with credit support of 25 percent or more  Return to text

Source: Lehman Brothers/Barclays

Page 3

Top panel
(5)

Title: Commodity Prices Decline
Series: GSCI Spot Index, GSCI Energy Index, GSCI Agriculture Index, GSCI Industrial Metals Index
Horizon: January 1, 2008 - December 12, 2008
Description: Commodity prices decline.

Source: Bloomberg

Middle panel
(6)

Title: Gold Prices Stabilize
Series: GSCI Spot Index, Gold Prices
Horizon: January 1, 2008 - December 12, 2008
Description: Commodity prices decline, while gold prices stabilize.

Source: Bloomberg

Page 4

Top panel
(7)

Title: Hedge Fund Performance Worsens
Series: Monthly Rate of Return and Net Asset Value of the Credit Suisse/Tremont Hedge Fund Index
Horizon: December 31, 2007 - November 30, 2008*
Description: Net asset values of hedge funds decline sharply.

* Rate of return for November 2008 is an estimate based upon 69 percent of the index data.  Return to text

Source: Credit Suisse/Tremont

Middle panel
(8)

Title: Recent TAF Auctions Stop-Out at Minimum Bid Rate
Series: Bid-to-Cover Ratio and Stop-Out Spread to Minimum Bid Rate for the Federal Reserve Term Auction Facility
Horizon: December 2007 - December 2008
Description: Recent TAF auctions stop-out at the minimum bid rate.

Source: Federal Reserve Board

Bottom panel
(9)

Title: Total Outstanding FX Swap Draw-Downs Stabilize
Series: Total Outstanding FX Swap Draw-Downs for the Bank of Korea, Swiss National Bank, Riksbank, Reserve Bank of Australia, European Central Bank, Norges Bank, Danmark National Banken, Bank of Japan, and Bank of England
Horizon: December 1, 2007 - December 12, 2008
Description: Total outstanding FX swap draw-downs stabilize.

Source: Federal Reserve Bank of New York

Page 5

Top panel
(10)

Title: One-Month Libor-OIS Spreads Decline from Widest Levels
Series: Spreads between One-Month Libor Rates and One-Month Overnight Index Swap Rates for U.S., U.K., and Euro Area
Horizon: July 1, 2007 - December 12, 2008
Description: Although the spread between the one-month Libor rate and the one-month overnight index swap rate in the U.S., U.K., and Euro area declined from the recent peak, it remains at wide levels.

Source: Bloomberg

Middle panel
(11)

Title: Three-Month Libor-OIS Spreads Decline from Widest Levels
Series: Spreads between Three-Month Libor Rate and Three-Month Overnight Index Swap Rates for U.S., U.K., and Euro Area
Horizon: July 1, 2007 - December 12, 2008
Description: Although the spread between the three-month Libor rate and the three-month overnight index swap rate in the U.S., U.K., and Euro area declined from the recent peak, it remains at wide levels.

Source: Bloomberg

Bottom panel
(12)

Title: Spread between Jumbo and Conforming Mortgage Rates Remains Wide
Series: Spread between Jumbo and Conforming Mortgage Rates
Horizon: January 1, 2007 - December 11, 2008
Description: The spread between jumbo and conforming mortgage rates remains wide.

Source: Bloomberg

Page 6

Top panel
(13)

Title: High Yield Corporate Cash and Derivative Bond Yields Diverge
Series: High Yield Corporate Bond Index Yield to Worst, High Yield 5-Year CDX Yield
Horizon: January 1, 2008 - December 11, 2008
Description: High yield corporate cash and derivative bond yields diverge.

Source: JPMorgan Chase

Middle panel
(14)

Title: Amount of Maturing Investment Grade Corporate Debt
Series: Amount of Fixed and Floating Rate Investment Grade Corporate Debt Maturing
Horizon: 2000 - 2009
Description: The amount of floating rate investment grade corporate debt projected to mature in 2009 is larger than the amount that will mature in 2008.

Source: JPMorgan Chase

Page 7

Top panel
(15)

Title: CDS Spreads Among Former Investment Banks Stable Recently
Series: Credit Default Swap Spreads for Morgan Stanley and Goldman Sachs
Horizon: August 1, 2008 - December 11, 2008
Description: Credit default swap spreads for Morgan Stanley and Goldman Sachs stabilize below recent wide levels.

Source: Markit

Middle panel
(16)

Title: Commercial Bank CDS Spreads Stable
Series: Credit Default Swap Spreads for Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo
Horizon: August 1, 2008 - December 11, 2008
Description: Credit default swap spreads for Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo stabilize below recent wide levels.

Source: Markit

Page 8

Top panel
(17)

Title: Three-Month AA-Rated Commercial Paper Rates Decline from Elevated Levels
Series: Three-Month AA-Rated Financial, Non-Financial, and Asset-Backed Commercial Paper Rates
Horizon: August 1, 2008 - December 11, 2008
Description: Three-month AA-rated financial, non-financial and asset-backed commercial paper rates decline from elevated levels.

Source: Federal Reserve Board

Middle panel
(18)

Title: Number of Companies Issuing Commercial Paper Through CPFF Declines
Series: Number of Issuers and Average Issuance per Issuer of Commercial Paper through CPFF
Horizon: October 27, 2008 - December 8, 2008
Description: The number of issuers and the average issuance per issuer of commercial paper through CPFF are below the levels observed during the first week the CPFF was operational.

Source: Federal Reserve Board

Bottom panel
(19)

Title: CPFF Market Share of 81+ Days Commercial Paper Issuance Declines
Series: Amount of 81+ Days CPFF and Non-CPFF Commercial Paper Issuance, CPFF Issuance as a Percent of Total Commercial Paper Issuance
Horizon: October 27, 2008 - December 11, 2008
Description: The proportion of commercial paper issued through the CPFF compared with total issuance has declined.

Source: Federal Reserve Board

Page 9

Top panel
(20)

Title: Mortgage Option Adjusted Spreads Narrow
Series: Mortgage Option Adjusted Spreads to Treasury, Agency Debt, and Interest Rate Swaps
Horizon: January 1, 2008 - December 11, 2008
Description: Mortgage option adjusted spreads narrow.

Source: Lehman Brothers/Barclays

Middle panel
(21)

Title: Treasury Yields Decline
Series: 2-Year, 10-Year, and 30-Year Treasury Yields
Horizon: January 1, 2008 - December 12, 2008
Description: Treasury yields decline.

Source: Bloomberg

Page 10

Top panel
(22)

Title: Conforming Mortgage Rates Decline
Series: Conforming Mortgage Rates
Horizon: January 1, 2008 - December 12, 2008
Description: Conforming mortgage rates decline.

Source: Bloomberg

Middle panel
(23)

Title: Mortgage Refinance Applications Increase
Series: Mortgage Application Index, Mortgage Refinance Application Index
Horizon: January 1, 2008 - December 5, 2008
Description: Mortgage refinance applications increase.

Source: Bloomberg

Page 11

Top panel
(24)

Title: Spreads Narrow with Intervention
Series: Index of Spreads and Yields for A1/P1 Non-Financial CP, A1/P1 Financial CP, ABCP, Mortgage Option-Adjusted Spread to Swaps, and 10-Year Fannie Mae Debt
Horizon: July 1, 2008 - December 11, 2008
Description: Spreads narrow with intervention.

Source: Federal Reserve Board, Lehman Brothers/Barclays, Bloomberg

Middle panel
(25)

Title: Spreads Tend to Widen Elsewhere
Series: Index of Spreads and Yields for A2/P2 Non-Financial CP, 10-Year AAA-Rated CMBS, Auto ABS, Credit Card ABS, Student Loan ABS, and 10-Year Muni Debt Yield/10-Year Treasury Yield
Horizon: July 1, 2008 - December 11, 2008
Description: Spreads tend to widen elsewhere.

Source: Federal Reserve Board, Bloomberg, JPMorgan Chase, Lehman Brothers/Barclays

Page 12

Top panel
(26)

Title: Federal Reserve Balance Sheet Expands Greatly
Series: The Composition of the Federal Reserve Balance Sheet
Horizon: August 2007 - December 2008
Description: The Federal Reserve balance sheet expands.

Stacked bar chart shows Other Credit Ext.; MMIFF; AMLF/CPFF; Maiden Lane III LLC; Maiden Lane LLC; FX Swaps; PCF Borrowing; Term Auction Facility; PDCF Borrowing; Single Tranche Repo; Short-Term Repo; Long-Term Repo; and Permanent Holdings.

Source: Federal Reserve Bank of New York

Bottom panel
(27) Federal Reserve Balance Sheet

Note: Components may not sum to totals because of rounding.

Source: Federal Reserve Bank of New York

Page 13

Top panel
(28)

Title: Fed Funds Rate Trades Below the Target
Series: Fed Funds Target Rate, Fed Funds Effective Rate, Interest Rate Paid on Excess Reserve Balances, Fed Funds Low Rate
Horizon: August 1, 2008 - December 11, 2008
Description: Fed funds trade below the target rate.

Source: Federal Reserve Bank of New York

Middle panel
(29)

Title: Fails in the Treasury Market Begin to Increase Again as Treasury GC Repo Rates Decline
Series: Fails Volume in the Treasury Market, Overnight GC Repo Rates
Horizon: January 1, 2008 - December 11, 2008
Description: Fails in the Treasury market increase as the Treasury GC repo rate declines.

Source: Fixed Income Clearing Corporation, Federal Reserve Bank of New York

Bottom panel
(30)

Title: Average Absolute Price Error between the FRB Treasury Spline and Nominal Yields Increase
Series: Average Absolute Price Error between the FRB Treasury Spline and Nominal Yields
Horizon: January 1, 2007 - December 11, 2008
Description: The average absolute price error between the FRB Treasury spline and nominal Treasury yields increases.

* Calculated from securities with two to ten years until maturity, excluding on-the-run and first off-the-run securities.

Source: Federal Reserve Board

Page 14

Top panel
(31)

Title: Fed Funds Futures Curve Shifts Lower
Series: Fed funds futures curves as of 9/15/2008, 10/28/2008, and 12/9/2008
Horizon: September 15, 2008 - December 9, 2008
Description: The fed funds futures curve has shifted lower since the October FOMC meeting.

Source: Bloomberg

Middle panel
(32)

Title: Eurodollar Futures Curve Shifts Lower
Series: Eurodollar futures curve as of 9/15/2008, 10/28/2008, and 12/9/2008
Horizon: September 15, 2008 - December 9, 2008
Description: The Eurodollar futures curve has shifted lower since the October FOMC meeting.

Source: Bloomberg

Page 15

Top panel
(33)

Title: Distribution of Expected Policy Target Rate Among Primary Dealers Prior to December 16 FOMC Meeting
Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by quarter, and market rate for policy expectation by quarter as of 12/8/2008
Horizon: 2008:Q4 - 2009:Q4
Description: Both the average primary dealer economist forecast and what is currently priced into Eurodollar futures indicate a slower rate of increase in the policy target rate over the next five quarters than was expected prior to the October FOMC meeting.

Source: Dealer Policy Survey

Middle panel
(34)

Title: Distribution of Expected Policy Target Rate Among Primary Dealers Prior to October 29 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 10/20/2008
Horizon: 2008:Q4 - 2009:Q4
Description: On average, primary dealer economists are forecasting a slower rate of increase in the policy target rate over the next five quarters than what is currently priced into Eurodollar futures.

Source: Dealer Policy Survey

Page 16

Top panel
(35)

Title: TIPS Implied Average Rate of Inflation: 5-10 Year Horizon
Series: Federal Reserve Board's 5-10 Year Horizon TIPS Inflation Compensation and Barclays' 5-10 Year Horizon TIPS Inflation Compensation
Horizon: January 1, 2008 - December 11, 2008
Description: TIPS implied average rate of inflation over a 5-10 year horizon as measured by the Federal Reserve Board has diverged from the implied average rate of inflation measured by Barclays.

Source: Federal Reserve Board, Barclays Capital

Middle panel
(36)

Title: Expectations for Average Annual CPI Inflation Rate from 2013-2018
Series: Primary Dealer Expectations for Average Annual CPI Inflation Rate from 2013-2018
Horizon: 2013-2018
Description: The Federal Reserve Bank of New York's December 2008 survey of primary dealers shows that, on average, expectations for the average annual CPI inflation rate between 2013 and 2018 have shifted lower since the October survey.

Source: Federal Reserve Bank of New York

APPENDIX: Reference Exhibits

Page 17

Top panel
(37)

Title: GC Repo Rates Decline Sharply to Trade at or Near Zero Percent in All Tranches
Series: GC Treasury, Agency, and Agency-MBS Repo Rates
Horizon: September 1, 2008 - December 12, 2008
Description: General collateral Treasury, agency, and agency-MBS repo rates have been trading at or near zero percent recently.

Source: Federal Reserve Bank of New York

Middle panel
(38)

Title: Treasury Bill Auction Stop-Out Rates At or Near Zero
Series: 4-Week, 3-Month, and 6-Month Treasury Bill Auction Bid-to-Cover and Stop-Out Rates
Horizon: August 4, 2008 - December 8, 2008
Description: Recent Treasury bill auctions stop-out at or near zero percent.

Source: Federal Reserve Bank of New York

Appendix 2: Materials used by Mr. Madigan

Class I FOMC - Restricted Controlled (FR)
December 9, 2008

Suggested questions for Committee discussion of zero-lower-bound issues

Federal funds target rate

• 1. As a general matter, when it appears likely that the federal funds rate will be constrained by the zero lower bound on nominal interest rates, should the Committee quickly move the target federal funds rate toward the zero bound, or should it "keep its powder dry" by reducing the target federal funds rate toward zero only gradually?
  
• 2. Do you think that reducing the target federal funds rate to zero would impose significant costs on financial markets or institutions? If so, what costs concern you most? In view of the potential costs and benefits of a zero or near-zero federal funds rate, what do you see as an appropriate minimum for the target federal funds rate?
  
• 3. Do you see significant benefits from communications strategies designed to indicate:
  
  • a) that the Federal Reserve intends to hold the target federal funds rate at a very low level until specified conditions are judged to obtain?
    
  • b) that the Committee sees a sizable risk that inflation in coming quarters could be appreciably lower than is consistent with the Federal Reserve's dual mandate, and that the Committee will act to mitigate that risk?
    
  • c) that in order to foster low short-term real interest rates and thus promote a resumption of economic expansion, the Federal Reserve will be willing to accept higher rates of inflation in the next few years than it normally would find desirable?
    
  Are there other approaches to providing information to the public about the future course of monetary policy that you see as promising?

Nonstandard policy tools

• 4. Do you see advantages to increasing the Committee's purchases of federal agency debt and mortgage-backed securities beyond the levels already announced? Do you see advantages to initiating large-scale purchases of longer-term Treasury securities? Should purchases of agencies or Treasuries be explicitly conditional in some way on market or economic conditions? If so, should the relevant conditions be announced in advance?
  
• 5. Do you see substantial further expansion of credit backstop facilities under the authority of Section 13(3) of the Federal Reserve Act (e.g., the CPFF or the TALF) as likely to be beneficial in current circumstances?
  
• 6. Do you see other nonstandard policy tools as likely to be particularly effective in current circumstances? What tools do you see as potentially most useful?
  
• 7. When employing nonstandard policy tools, how would the Committee most appropriately formulate its directive to the Desk? Would you favor specifying objectives for quantities of assets to be purchased, for levels of interest rates other than the federal funds rate, or for interest rate spreads?
  
• 8. When employing nonstandard policy tools, what communications approaches would be most effective in explaining the Committee's use of such tools to markets and the public?
  

Appendix 3: Materials used by Mr. Covitz, Ms. Aaronson, and Mr. Ahmed

Material for Staff Presentation on Financial Developments
December 15, 2008

Class II FOMC - Restricted (FR)

Exhibit 1
Financial Markets

Top-left panel
10-year Treasury Yield

Series: 10-year Treasury Yield
Horizon: 2002 to December 12, 2008
Description: Treasury yields experienced a sharp decline after the October 2008 FOMC meeting and were at a minimum for the horizon on December 12, 2008.

Note. Securities are on the run.

Top-right panel
Interpretation of Falling Treasury Yields

• Investors revised down their economic outlook
  • - Lower expected path of policy
  • - Continued flight to quality
• Communications regarding alternative monetary policy tools

Middle-left panel
Covariance of Changes in Stock Prices and Treasury Yield

Series: Covariance of Changes in Stock Prices and Treasury Yield
Horizon: 2002 to December 12, 2008
Description: The covariance experienced a small peak in 2002, and then in mid-2008 the covariance rapidly increased well beyond the 2002 peak. The covariance decreased slightly after the October FOMC meeting but remained elevated.

Note. Data are percent changes in off the run nominal 10-year Treasury yield and S&P 500 stock prices.

Middle-right panel
Ratio of Trend Earnings to Price for S&P 500 and Long-Run Treasury Yield

Series: (Trend earnings) / P *, and Long-run real Treasury yield
Horizon: 1984 to December 12, 2008
Description: In mid-November 2008, ratio of trend earnings to price for S&P 500 increased dramatically while long-run Treasury yields fell dramatically, thus producing a large difference in the rates.

* Trend earnings are estimated using analysts' forecasts of year-ahead earnings from I/B/E/S.  Return to text

+ Denotes the latest observation using daily interest rates and stock prices and latest monthly earnings data from I/B/E/S: for ratio of trend earnings to price for S&P 500, slightly less than 12 percent; for long-run Treasury yield, slightly more than one percent.

Bottom-left panel
Corporate Bond Spreads

Series: 10-year high-yield, 10-year BBB
Horizon: 2002 to December 12, 2008
Description: The yield spreads on 10-year high-yield bonds and 10-year BBB bonds increased sharply starting in mid-2008 and continued to increase after the October FOMC meeting.

Note. Corporate yields from smoothed yield curves based on Merrill Lynch bond data and spreads measured relative to comparable-maturity Treasury securities.

Bottom-right panel
Forward Rate Spread Changes since October 28, 2008

Exhibit 2
Commercial Paper Market

Top-left panel
Commercial Paper Outstanding in the U.S. Market

Series: Financial, Asset-backed, and Nonfinancial
Horizon: January 2008 to December 12, 2008
Description: Outstanding financial commercial paper and asset-backed commercial paper dropped in September and October. However around the October FOMC meeting there was a noticeable increase in both. In addition, outstanding nonfinancial commercial-paper was relatively flat over the horizon.

Source. Federal Reserve Board.

Top-right panel
Net Flows of Taxable Money Market Funds

Series: Government funds, Prime funds
Horizon: September 11, 2008 to December 12, 2008
Description: In September there were large net flows out of prime money market funds. However these negative net flows tapered and became mostly positive by early November. Net flows of government money market funds decreased over the horizon but remained for the most part positive.

Source. iMoneyNet.

Middle-left panel
Spreads on Overnight Commercial Paper

Series: ABCP, Nonfinancial A2/P2
Horizon: January 2008 to December 12, 2008
Description: The spreads on A2/P2-rated nonfinancial commercial paper and overnight asset-backed commercial paper both experienced a sharp spike in September. However, they have declined, on net, since the October FOMC meeting.

Note. All spreads relative to AA nonfinancial rate.

Middle-right panel
Gap Between 30-day and Overnight Rates on Nonfinancial A2/P2 Paper

Series: Gap Between 30-day and Overnight Rates on Nonfinancial A2/P2 Paper
Horizon: November 2008 to December 12, 2008
Description: Over the horizon the gap was volatile and it trended upwards.

Bottom-left panel
Commercial Paper Maturing after Year End

Series: Rated higher than A2/P2, Rated A2/P2 or lower
Horizon: Mid-December 2003 to mid-December 2008
Description: The percent of commercial paper rated higher than A2/P2 places over year-end was greater for 2008 than the average pace over the previous 5 years*. The percent of commercial paper rated A2/P2 or lower places over year-end was lower for 2008 than the average pace over the previous 5 years*.

Note. Measured as of the second Wednesday in December of each year.

* Average of annual percentages.  Return to text

Bottom-right panel
Summary of Conditions

• Market appears to have been stabilized by interventions.
• A2/P2 sector improved but strained.
• Year-end pressures substantial for lower-rated programs.

Exhibit 3
Business Borrowing

Top-left panel
Gross Nonfinancial Bond Issuance

Series: Speculative Grade, Investment Grade
Horizon: 2007 to November 2008
Description: Investment grade bonds issuance was down for 2008:Q3, but rebounded in October and November 2008. Speculative grade bond issuance was very low for 2008:Q3, and in October and November 2008 was virtually nonexistent.

Source. Securities Data Company.

Top-right panel
Nonfinancial Bonds Maturing

Series: Speculative Grade, Investment Grade
Horizon: 2009 to 2011
Description: The volume of speculative bonds due to mature in 2009 and 2010 was low, and the volume somewhat increased for 2011. The volume of investment grade bonds maturing in 2009 and 2010 were comparable; the volume increased slightly in 2011.

Note. Excludes MTNs and other bonds with unknown maturities.

Middle-left panel
Liquid Asset Ratio for Nonfinancial Corporations*

Series: Speculative Grade, Investment Grade
Horizon: 1990 to 2008:Q3
Description: Liquid asset ratios for firms rated speculative and investment grade trended upwards over the horizon and were relatively high in 2008:Q3.

* Current assets over total assets.  Return to text

Note. Annual through 1999 and quarterly thereafter.

Source. Compustat.

Middle-right panel
Change in C&I Loans

Series: Change in C&I Loans
Horizon: February 2007 to November 2008
Description: Loans increased rapidly in September and October 2008 and then plummeted in November 2008.

Bottom-left panel
Change in Commercial Mortgage Debt

Series: Change in Commercial Mortgage Debt
Horizon: 2000 to 2008:Q3
Description: Change in commercial mortgage debt decreased sharply in 2008 and turned substantially negative in 2008:Q3.

Source. Flow of Funds.

Bottom-right panel
Change in Nonfinancial Business Debt

Series: Change in Nonfinancial Business Debt
Horizon: 2000 to 2008:Q3, and projected through 2010
Description: Nonfinancial business debt decreased sharply in 2008, and was projected to remain very low through 2010.

Exhibit 4 (Final Exhibit)
Household Credit

Top-left panel
Changes in Mortgage Debt and House Prices

Series: Mortgage Debt, LP Price Index
Horizon: 1992 to 2008:Q3
Description: After trending upwards from 1992 to about 2006, mortgage debt and house prices (LP Price Index) began declining in early to mid-2006 and continued to decline in Q2 and Q3 of 2008.

Source. Flow of Funds and Loan Performance.

Top-right panel
Agency and Non-Agency MBS Issuance

Series: GSEs, Ginnie Mae, Non-agency
Horizon: 2002 to October 2008
Description: October's MBS issuance was slightly below the already low levels of issuance in 2008:Q3.

Source: For agency issuance, Fannie Mae, Freddie Mac,and Ginnie Mae. For non-agency issuance, Inside Mortgage Finance.

Middle-left panel
Change in Revolving and Nonrevolving Credit*

Series: Change in Revolving and Nonrevolving Credit
Horizon: 2007 to October 2008
Description: Revolving and nonrevolving credit rose in 2007 and the first half of 2008. It then rose slightly in 2008:Q3 before falling in October 2008.

* Data are seasonally adjusted.  Return to text

Middle-right panel
Credit Card and Auto Loan ABS Issuance

Series: Credit Card and Auto Loan ABS Issuance
Horizon: 2007 to November 2008
Description: Issuance per month of ABS backed by auto and credit card loans was comparable for 2007 and the first half of 2008. Issuance per month dramatically slowed in 2008:Q3, and was approaching zero in October and November 2008.

Source: Citigroup Global Markets.

Bottom-left panel
Reasons Why It is Not a Good Time to Purchase an Automobile

Series: Tight credit conditions; Weak and uncertain economy
Horizon: 1978 to November 2008
Description: The percentage of people citing concerns about the economy in why it is not a good time to buy an automobile increased significantly in 2008 to about 65 percent. (The historical average is about 24 percent.) The percentage of people sighting tight credit conditions soared to unprecedented levels (about 14-18 percent) in 2008.

* Percent of respondents that report the next twelve months will not be a good time to purchase an automobile.

Source. University of Michigan Survey of Consumers.

Bottom-right panel
Unused Bank Loan Commitments to Businesses and Households

Series: Unused Bank Loan Commitments to Businesses and Households
Horizon: 1990 to 2008:Q3
Description: Banks' unused loan commitments decreased sharply in 2008 and reached a low for the horizon in 2008:Q3.

Note. Adjusted for recent acquisition of a large thrift.

Material for Staff Presentation on Nonfinancial Developments
December 15, 2008

Class II FOMC - Restricted (FR)

Exhibit 1
Recent Indicators

Top panel
Private Payroll Employment

A line chart shows change in private payroll employment from 1974 through November 2008. Data are three-month percent changes at an annual rate. Shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research (NBER). Another shaded bar indicates the NBER Peak in December 2007.

As shown in the figure, instances of negative growth in private payroll employment generally coincide with periods of business recession. During the November 1973-March 1975 recession, the curve dips to about -10 percent. Over the next four years or so, the curve fluctuates between about 0 and 8 percent, before declining to about -5.5 percent during the January 1980-July 1980 recession. In late 1980, the curve peaks near 4 percent before declining again to about -4 percent during the July 1981-November 1982 recession. The curve climbs to nearly 10 percent by late 1983, and then fluctuates between about 0.5 and 6.0 until shortly before the next recession July 1990-March 1991, during which it declines to about -3 percent. The curve becomes strictly positive for several years beginning in mid-1992, and fluctuates between about 1 and 5 through late 2000. During the March 2001-November 2001 recession, the curve drops again to about -3 percent, recovers gradually to about 3 percent by mid-2004, and then fluctuates between about 1 and 3 percent until the NBER peak in December 2007. The curve then declines to end at about -5 percent in November 2008.

The chart also contains an inset table, as follows:

Middle-left panel
Initial Claims for Unemployment Insurance

A shaded bar indicates a period of business recession as defined by the National Bureau of Economic Research (NBER), March 2001-November 2001. Another shaded bar indicates the NBER Peak in December 2007.

Note. Four-week moving average.

Middle-right panel
Real PCE Goods Ex. Motor Vehicles

p. Staff forecast.  Return to table

Note. Annual figures are Q4/Q4 percent changes, and semiannual figure is Q4/Q2 percent change.

Bottom-left panel
Consumer Sentiment Index

Shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): January 1980-July 1980, July 1981-November 1982, July 1990-March 1991, and March 2001-November 2001. Another shaded bar indicates the NBER Peak in December 2007.

Bottom-right panel
Sales of Light Vehicles

Shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): January 1980-July 1980, July 1981-November 1982, July 1990-March 1991, and March 2001-November 2001. Another shaded bar indicates the NBER Peak in December 2007.

Exhibit 2
Recent Indicators and Near-Term Outlook

Top-left panel
Single-Family Housing Starts

A shaded bar indicates a period of business recession as defined by the National Bureau of Economic Research (NBER), March 2001-November 2001. Another shaded bar indicates the NBER Peak in December 2007.

Top-right panel
Nondefense Capital Goods Excluding Aircraft

A shaded bar indicates a period of business recession as defined by the National Bureau of Economic Research (NBER), March 2001-November 2001. Another shaded bar indicates the NBER Peak in December 2007.

Note. Three-month moving averages.

Middle panel
Manufacturing Industrial Production

Shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): July 1990-March 1991, and March 2001-November 2001. Another shaded bar indicates the NBER Peak in December 2007.

Note. The diffusion index is measured across the 282 industry categories included in manufacturing IP. It equals (percentage of industries increasing over 3 months - percentage decreasing over 3 months)/2 + 50.

* Special factors include machinists strike at Boeing and effects of September hurricanes.  Return to table

Bottom panel
Real GDP

p. Staff forecast.  Return to table

Exhibit 3
Key Background Factors

Top-left panel
Financial Stress Index

Note. Index constructed using risk spreads, volatility measures, and liquidity measures.

Top-right panel
Baa Corporate Bond and 10-year Treasury Rates

A line chart shows Baa corporate bond and 10-year Treasury rates from 2004:Q1 through 2008:Q4, plus forecasts from 2009:Q1 through 2010:Q4. Unit is percent. The curves move roughly in parallel until 2008:Q1, when they begin to diverge. The curves are forecast to be furthest apart in 2009:Q1 before gradually moving closer together again.

The Baa series curve begins in 2004:Q1 at about 6.3 percent, and fluctuates between about 5.9 and 6.8 through 2008:Q1. The curve then increases to about 7.2 by 2008:Q3, and to nearly 9.0 by 2008:Q4. The series is then forecast to decrease steadily to about 6.5 percent by the end of the period.

The 10-year Treasury series curve begins in 2004:Q1 at about 4.0 percent, fluctuates between about 4.2 and 4.6 through 2006:Q1, and fluctuates between about 4.6 and 5.1 through 2007:Q3. The curve then decreases to nearly 3.6 by 2008:Q1, increases to nearly 3.9 through 2008:Q3, then decreases again to about 2.7 by the beginning of the forecast period. The curve then steadily increases to end at about 3.0 percent.

Middle-left panel
Wilshire 5000

ND No data  Return to table

Middle-right panel
Real Broad Dollar Index

As shown in the figure, the October Greenbook curve begins at about 83.4 in 2008:Q3, and increases to about 90 by 2008:Q4. Entering the current forecast period, the curve decreases steadily to end at about 84 in 2010:Q4.

Bottom-left panel
Contribution of Fiscal Impetus to Real GDP

Bottom-right panel
Mortgage Rates

Note. 30-year conforming fixed rate mortgages.

Exhibit 4
Medium-Term Outlook

Top panel
Summary of the Medium-term Projection

Note. Annual data are Q4/Q4 percent changes; semiannual data are Q2/Q4 or Q4/Q2 percent changes at an annual rate.

Middle-left panel
Cyclical Comparison on GDP

A line chart shows three curves, "1973:Q4", "1981:Q3", and "2008:Q2". The x-axis begins with a "Peak" and extends forward 11 quarters from the peak. The unit is an index, Peak = 100; therefore, all three curves begin at 100.

The 1973:Q4 curve decreases to a little more than 99 in the first quarter, increases to about 99.5 by the second quarter, then steadily decreases to about 97 by the fifth quarter. It then increases to about 104 by the eleventh quarter.

The 1981:Q3 curve decreases to slightly more than 97 by the second quarter, remains around that level through the fifth quarter, then increases steadily to nearly 109 by the eleventh quarter.

The 2008:Q2 curve decreases very slightly by the first quarter, decreases to a little more than 97 by the fourth quarter, then gradually increases to about 101.5 by the eleventh quarter.

Middle-right panel
Reasons for Sluggish Recovery

• Continued financial headwinds
• Not a policy-generated recession
• Policy constrained by zero lower bound

Optimal Control:

Bottom-left panel
Federal Funds Rate

Bottom-center panel
Unemployment Rate

A line chart shows two curves for unemployment rate, "Baseline" and "Optimal control", over 2008:Q1-Q4 and the forecast period of 2009:Q1 through 2012:Q4. Unit is percent.

The baseline curve begins at just under 5 percent in 2008:Q1, and increases to about 6.75 by 2008:Q4. It continues to increase into the forecast period, to about 8.2 by 2010:Q1, declines slightly to about 8.1 by 2010:Q4, and then decreases steadily to end at about 5.6 percent in 2012:Q4.

The optimal control curve begins at about 6 percent in 2008:Q3, and at first tracks closely with (though slightly above) the baseline curve. The optimal control curve increases to about 7.75 by 2009:Q2, and remains at about that level through 2010:Q1, crossing beneath the baseline curve around 2009:Q3. It then decreases to end at about 4.8 percent in 2012:Q4.

Bottom-right panel
Core PCE Prices

A line chart shows two curves for core PCE prices, "Baseline" and "Optimal control", over 2008:Q1-Q4 and the forecast period of 2009:Q1 through 2012:Q4. Unit is four-quarter percent change.

The baseline curve begins at about 2.2 percent change in 2008:Q1, increases to about 2.4 by 2008:Q3, and decreases to about 2.0 by 2008:Q4. The curve continues to decrease into the forecast period, steeply at first and then nearly leveling-off. It ends at about 0.7 percent change in 2012:Q4.

The beginning of the optimal control curve coincides with the baseline curve at about 2.4 percent change in 2008:Q3, but then it remains strictly above the baseline curve. The optimal control curve declines to about 2.2 by 2008:Q4, and continues to decline into the forecast period, to about 1.3 by 2010:Q2. It then increases to end at about 1.9 percent change in 2012:Q4.

Exhibit 5 - Last Exhibit
Inflation Outlook

Top-left panel
Medium-Term Price Projection

p. Staff forecast.  Return to table

Top-right panel
Unemployment Rate

As shown in the figure, the beginning of the October Greenbook curve coincides with the Current curve at just under 6 percent in 2008:Q3. It increases into the current forecast period, reaching about 7.3 by 2010:Q2, and then edges down to end at about 7.2 in 2010:Q4.

* Staff estimate  Return to table

Middle-left panel
Structural Unemployment

• Large changes in industry employment could raise structural unemployment and the NAIRU.
• To examine this look at:
  • Measure of Sectoral Reallocation
  • Beveridge Curve

Middle-right panel
Sectoral Reallocation

A line chart shows sectoral reallocation from 1972 through 2008:Q4 (an average of October and November). The y-axis is labeled "Dispersion" and ranges from 0.0 to 2.5. Dispersion measures the deviation of industry employment growth from total employment growth with cyclical components removed. Shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research (NBER). Another shaded bar indicates the NBER Peak in December 2007.

As shown in the figure, from 1972 through 1991, dispersion fluctuates but generally remains within a range of about 0.3 to 0.8, with occasional spikes. The curve spikes to about 2.2 during the November 1973-March 1975 recession, to nearly 1.5 during the January 1980-July 1980 recession, and to about 1.7 during the July 1981-November 1982 recession. It also spikes occasionally between recessions, notably to about 2.3 in 1978, and to about 1.9 in 1983. Between 1992 and 2007, dispersion fluctuates within a narrower range of about 0.3 to 0.6, except that it increases to about 1.0 during the March 2001-November 2001 recession. The curve generally increases in 2008, and ends at about 0.65 in 2008:Q4.

Beveridge Curve (2001 to 2008)

Bottom-left panel
Using JOLTS

A scatterplot with a trend curve plots the unemployment rate¹ (x-axis) against the job openings rate (y-axis) from 2001 through 2008 using the Job Openings and Labor Turnover Survey. With negative slope and slightly positive curvature, the trend curve runs between about (4.6, 3.0) and (6.0, 2.07). Recent points for 2008:Q3 and October 2008 are plotted at about (5.75, 2.4) and (6.25, 2.2), respectively.

1. Staff estimation excluding EUC.  Return to text

Bottom-right panel
Using Help Wanted Index

A scatterplot with a trend curve plots the unemployment rate¹ (x-axis) against a help wanted index² (y-axis) from 2001 through 2008. With negative slope and slightly positive curvature, the trend curve runs between about (4.66, 125) and (6.33, 87). Recent points for 2008:Q3 and the average of October and November 2008 are plotted at about (5.75, 100) and (6.33, 90), respectively.

1. Staff estimation excluding EUC.  Return to text

2. Constructed by Board staff from the Conference Board's print and on-line help wanted indexes.  Return to text

Material for Staff Presentation on The International Outlook
December 15, 2008

Class II FOMC - Restricted (FR)

Exhibit 1
Financial Market Stresses

Note: Shading indicates period since last FOMC meeting, October 28-29, 2008.

Top-left panel
2-Year Government Bond Yields

Top-right panel
10-Year Government Bond Yields

Middle-left panel
Equity Prices*

* MSCI indexes.  Return to text

Middle-center panel
EME Credit Spreads

Middle-right panel
EME Private Capital Inflows*

* Gross debt issuance and syndicated loans. 3-month moving average.  Return to text

Bottom-left panel
Exchange Value of the Dollar (FC/USD)

* Trade-weighted index.  Return to table

Bottom-right panel
Exchange Value of the Dollar (FC/USD)

* Other Important Trading Partners, trade-weighted index.  Return to table

Exhibit 2
The Foreign Growth Outlook

Top panel
Real GDP*

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

** Annualized percent change from final quarter of preceding period to final quarter of period indicated.  Return to table

Real GDP in 2008:Q3

Middle-left panel
Growth Contributions in AFEs

Middle-right panel
GDP Growth in NIEs*

* Newly Industrialized Economies.  Return to text

The Trade Channel

Bottom panel
U.S. Growth and Real Exports in the Foreign Economies

* Foreign G-7 plus major emerging market economies.  Return to table

Note: Shaded area shows staff forecast.

Exhibit 3
Advanced Foreign Economies

Top-left panel
Europe

Top-right panel
Japan

Middle-left panel
Canada

* Single unit dwellings.  Return to table

Middle-right panel
Fiscal Stimulus

• Many countries have announced packages (e.g. Germany, France, U.K.).
• Stimulative content of these packages likely small.
• Assume additional fiscal stimulus will be introduced next year.
• Total stimulus should boost AFE growth ¼ to ½ percentage point (a.r.) starting next year.

Bottom-left panel
Policy Rates

Note: Shaded area shows staff forecast [beginning around December 15, 2008].

Bottom-right panel
AFE Inflation

Note: Shaded area shows staff forecast.

Exhibit 4
Emerging Market Economies

Top-left panel
China

As shown in the figure, the series begin in 2000:Q1. Imports from Asia begins at about 37, Exports begins at about 39, and IP begins at just under 11.

* ASEAN-4, Japan, Korea, Hong Kong, and India.  Return to table

** Based on October and November data.  Return to table

Top-right panel
Other Emerging Asia

* U.S. export-weighted aggregate of Korea, Singapore, and Taiwan.  Return to table

Middle-left panel
Mexico

Middle-right panel
Brazil

Bottom-left panel
Monetary Policy

• Interest rate cuts: Many countries in emerging Asia, including China, Korea, Hong Kong, Taiwan, and India.
• Lower reserve requirements: China, Malaysia, and Brazil.

Bottom-right panel
Fiscal Policy

• China: Spending of 16% of GDP over next 2 years.
  • -- Includes some previous projects.
  • -- Implementation may take longer.
  • -- Federal govt to pay for only 30%.
• Chinese package could boost growth 1 to 1.5 percentage points per year.
• Korea and Mexico, among others, have announced smaller, but sizable, packages.

Exhibit 5 (Last)
U.S. Trade Outlook

Top-left panel
Commodity Prices

Note: Shaded area shows staff forecast.

* IMF, U.S. import-weighted.  Return to table

Top-center panel
U.S. Trade Prices

Top-right panel
Shipping Rates*

1990-2006 Average: 41.72

* Baltic dry bulk cargo index.  Return to text

Middle-left panel
Trade in Real Goods

Middle-right panel
Broad Real Dollar

Note: Shaded area shows staff forecast.

Bottom panel
Trade in Real Goods and Services*

* Annualized percent change or percentage point contribution from final quarter of preceding period to final quarter of period indicated.  Return to text

Note: December Greenbook projections updated for October trade and November trade price data.

Appendix 4: Materials used by Mr. Madigan

Material for FOMC Briefing on Monetary Policy Alternatives
Brian Madigan
December 16, 2008

Class I FOMC - Restricted Controlled (FR)

[Note: In Appendix 4, strong emphasis (bold) indicates bold text in the original document. Emphasis (strike-through) indicates strike-through text in the original document.]

October FOMC

1. The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.
   
2. The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.
   
3. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.
   
4. Recent policy actions, including today's rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Draft Statement
Alternative A

1. Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
   
2. Meanwhile, inflationary pressures have diminished quickly. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters [and sees some risk that inflation could decline for a time below rates that best foster economic growth and price stability in the longer term.] [In support of its dual mandate, the Committee will seek to achieve a rate of inflation, as measured by the price index for personal consumption expenditures, of about 2 percent in the medium term.]
   
3. In current circumstances, the Committee judged that it was not useful to set a specific target for the federal funds rate. As a result of the large volume of reserves provided by the Federal Reserve's various liquidity facilities, the federal funds rate has declined to very low levels, and the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rates near zero for some time.
   
4. The focus of policy going forward will be to continue to support the functioning of financial markets and stimulate the economy through open market operations and other measures that entail the use of the Federal Reserve's balance sheet. In particular, as previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to actively consider ways of using its balance sheet to further support credit markets and economic activity.
   
5. In related actions, the Board of Governors today approved a 75 basis point decrease in the primary credit rate to ½ percent and established interest rates on required and excess reserve balances of ¼ percent. In approving the reduction in the discount rate, the Board acted on requests submitted by the Federal Reserve Banks of …

Draft Statement
Alternative B

1. The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to ¼ percent.
   
2. Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
   
3. Meanwhile, inflationary pressures have diminished quickly. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters [and sees some risk that inflation could decline for a time below rates that best foster economic growth and price stability in the longer term.]
   
4. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant near zero exceptionally low levels of the federal funds rate for some time.
   
5. The focus of policy going forward will be to continue to support the functioning of financial markets and stimulate the economy through open market operations and other measures that entail the use of the Federal Reserve's balance sheet. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities and as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve continues to consider possible additions to and expansions of its liquidity facilities, as well as other means of using its balance sheet to further support credit markets and economic activity. The Federal Reserve will continue to actively consider ways of using its balance sheet to further support credit markets and economic activity.
   
6. In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to ½ percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of… The Board also established interest rates on required and excess reserve balances of ¼ percent.

Draft Statement
Alternative C

1. The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to ½ percent.
   
2. Reflecting in part the intensification of the financial strains earlier in the fall, the pace of economic activity has slowed further and the near-term outlook has worsened. Labor market conditions have continued to deteriorate, and consumer spending, business investment, and industrial production have declined.
   
3. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters [and sees some risk that inflation could decline for a time below rates that best foster economic growth and price stability in the longer term].
   
4. In these circumstances, the Committee's primary concern is the downside risks to the economy. The Committee will monitor economic and financial developments carefully and will use all available tools to promote the resumption of sustainable economic growth and to preserve price stability.
   
5. In particular, as previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve continues to consider possible additions to and expansions of its liquidity facilities, as well as other means of using its balance sheet to further support credit markets and economic activity.
   
6. In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to ¾ percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of…
   
7. In view of the large volume of reserves provided by the Federal Reserve's various liquidity facilities, the Committee recognizes that the federal funds rate is likely to average somewhat below the ½ percent target.

Draft Statement
Alternative D

1. The Federal Open Market Committee decided today to keep its target for the federal funds rate at 1 percent.
   
2. Reflecting in part the intensification of the financial strains earlier in the fall, the pace of economic activity appears to have slowed further, and the near-term outlook for growth has deteriorated. Moreover, the downside risks are significant. However, policy actions taken in recent months, including reductions in short-term interest rates to very low levels, extraordinary liquidity measures, and official steps to strengthen the financial system, should help over time to improve credit conditions and promote a return to moderate economic growth. As announced previously, the Federal Reserve will purchase a large volume of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets and thus to broader economic activity. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to help facilitate the extension of credit to households and small businesses.
   
3. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.
   
4. In view of the large volume of reserves provided by the Federal Reserve's various liquidity facilities, the Committee recognizes that the federal funds rate is likely to average significantly below the target rate for some time. The Committee will monitor economic and financial developments carefully in light of recent policy actions and will act as needed to promote sustainable economic growth and price stability.

Draft Directive
Alternative A

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. Over the intermeeting period, the Committee directs the Desk to purchase GSE debt and agency-guaranteed MBS, with the aim of providing support to the mortgage and housing markets. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of conditions in primary mortgage markets and the housing sector. By the end of the second quarter of next year, the Desk is expected to purchase up to $100 billion in housing-related GSE debt and up to $500 billion in agency-guaranteed MBS. The Committee has suspended setting a target for the federal funds rate, and it anticipates that the reserve conditions associated with its open market operations and the liquidity programs put in place by the Federal Reserve will result in exceptionally low levels of the federal funds rates near zero. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

Draft Directive
Alternative B

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range of 0 to ¼ percent. The Committee directs the Desk to purchase GSE debt and agency-guaranteed MBS during the intermeeting period with the aim of providing support to the mortgage and housing markets. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of conditions in primary mortgage markets and the housing sector. By the end of the second quarter of next year, the Desk is expected to purchase up to $100 billion in housing-related GSE debt and up to $500 billion in agency-guaranteed MBS. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

Draft Directive
Alternative C

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee has established a target for the federal funds rate of ½ percent. In view of the large volume of reserves provided by the Federal Reserve's various liquidity programs, the Committee recognizes that the federal funds rate is likely to average somewhat below the ½ percent target rate. The Committee directs the Desk to purchase GSE debt and agency-guaranteed MBS during the intermeeting period with the aim of providing support to the mortgage and housing markets. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of conditions in primary mortgage markets and the housing sector. By the end of the second quarter of next year, the Desk is expected to purchase up to $100 billion in housing-related GSE debt and up to $500 billion in agency-guaranteed MBS. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

Draft Directive
Alternative D

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. The Committee has maintained its target for the federal funds rate at 1 percent, but in view of the large volume of reserves provided by the Federal Reserve's various liquidity programs, the Committee recognizes that the federal funds rate is likely to average somewhat below the ½ percent target rate.