Presentation Materials (PDF)

Pages 151 to 165 of the Transcript

Appendix 1: Materials used by Mr. Sack

Material for
FOMC Presentation: Financial Market Developments and Desk Operations

Brian Sack
March 15, 2011

Exhibit 1

Top-left panel
(1)

Title: Brent Oil Price
Series: Front-month futures contract
Horizon: August 3, 2009 - March 11, 2011
Description: There was a sizable spike in oil prices during the intermeeting period.

Source: Bloomberg

Top-right panel
(2)

Title: Economic News Index
Series: Citigroup economic surprise index
Horizon: August 3, 2009 - March 11, 2011
Description: During the intermeeting period the economic news index rose corresponding to stronger-than-expected economic releases.

Source: Citigroup

Middle-left panel
(3)

Title: Implied Federal Funds Rate Path
Series: Future federal funds rates implied by Eurodollar and federal funds futures contracts
Horizon: 01/25/11 and 03/11/11
Description: The implied federal funds rate path was essentially unchanged during the intermeeting period.

Source: Federal Reserve Bank of New York

Middle-right panel
(4)

Title: Treasury Yields
Series: 2-year, 5-year, and 10-year Treasury yields
Horizon: August 3, 2009 - March 11, 2011
Description: Treasury yields ended the period modestly higher than their levels at the time of the last FOMC meeting.

Source: Bloomberg

Bottom-left panel
(5)

Title: Breakeven Inflation Rates
Series: 5-year spot and 5-year, 5-year forward rate
Horizon: August 3, 2009 - March 11, 2011
Description: The forward rate has stabilized during the intermeeting period, while the 5-year spot rate has continued to increase.

Source: Federal Reserve Board of Governors

Bottom-right panel
(6)

Title: Intermeeting Change in Forward Breakeven Inflation Rates (1-Year Rates)
Series: Change in Forward Breakeven Inflation Rates (1-Year Rates)
Horizon: 0 to 4 Years Forward
Description: The increase in the 5-year rate was driven primarily by a very steep rise in the breakeven inflation rate over the next year.

Source: Federal Reserve Board of Governors

Exhibit 2

Top-left panel
(7)

Title: S&P 500 Index
Series: S&P 500 Index
Horizon: August 3, 2009 - March 11, 2011
Description: The S&P 500 gained about 2.5% during the intermeeting period.

Source: Bloomberg

Top-right panel
(8)

Title: Equity Risk Premium
Series: Equity Risk Premium
Horizon: January 1, 1990 - March 11, 2011
Description: The equity risk premium declined.

Source: Federal Reserve Board of Governors

Middle-left panel
(9)

Title: Credit Spreads
Series: High yield Corporate Bonds and Leveraged Loans
Horizon: December 31, 2001 - March 11, 2011
Description: The credit spreads continued to narrow during the intermeeting period.

Source: Bank of America, Credit Suisse

Middle-right panel
(10)

Title: CMBS Issuance
Series: CMBS Issuance
Horizon: 2000 - 2011*
Description: CMBS investment has increased.

* Average dealer forecast for total 2011 issuance.  Return to text

Source: Credit Suisse, Federal Reserve Bank of New York

Bottom-left panel
(11)

Title: DXY Dollar Index
Series: DXY Dollar Index
Horizon: August 3, 2009 - March 11, 2011
Description: The dollar continued to weaken against other major currencies over the intermeeting period.

Source: Bloomberg

Bottom-right panel
(12)

Title: 2-Year Global Sovereign Debt Yields
Series: U.S., U.K., and Germany 2-year Global Sovereign Debt Yields
Horizon: January 1, 2010 - March 11, 2011
Description: 2-year sovereign debt yields in the U.K. and Germany have moved higher to a greater extent than domestic Treasury yields in recent months.

Source: Bloomberg

Exhibit 3

Top-left panel
(13)

Title: SOMA Security Holdings
Series: Agency debt, MBS, and Treasury securities
Horizon: December 2008 - March 2011
Description: Total SOMA holdings have continued to increase.

Source: Federal Reserve Board of Governors

Top-right panel
(14)

Title: SOMA Outright Purchases
Series: Agency debt, MBS, and Treasury securities
Horizon: December 2008 - September 2011
Description: It is projected that there will be an abrupt decline in Treasury purchases under the assumption that the $600 billion of intended purchases is completed at the end of June.

Source: Federal Reserve Bank of New York

Middle-left panel
(15)

Title: MBS Spread to Treasuries
Series: Option-adjusted spread for current coupon security, only using 4.0 coupon between 06/01/10 and 11/08/10
Horizon: January 2, 2009 - March 11, 2011
Description: The price of MBS relative to Treasury securities did not change much during the first taper in October 2009.

Source: Barclays Capital

Middle-right panel
(16)

Title: Trading Volume in Treasury Securities
Series: Daily volume of all benchmark coupon securities
Horizon: January 1, 2006 - March 11, 2011
Description: Activity in the Treasury market is decent.

Source: BrokerTec

Bottom-left panel
(17)

Title: SOMA Income Projections*
Series: March Tealbook Baseline and January Tealbook Baseline
Horizon: 2007 - 2020
Description: The projected income remains elevated for the next two years, falls to a trough, and then increases once the portfolio begins to expand again.

* Actual values through 2010 and FRBNY projections thereafter.  Return to text

Source: Federal Reserve Bank of New York

Bottom-right panel
(18)

Title: SOMA Income Projections*
Series: March Tealbook Baseline and Counterfactual with No LSAPs
Horizon: 2007 - 2020
Description: The asset purchase programs are projected to boost SOMA net income substantially from 2009 to 2014. By 2015, the income path will be reduced.

* Actual values through 2010 and FRBNY projections thereafter.  Return to text

Source: Federal Reserve Bank of New York

Appendix 2: Materials used by Mr. English

Material for FOMC Briefing on Monetary Policy Alternatives

Bill English
March 15, 2011

January FOMC Statement

1. Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
5. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

[Note: In the March FOMC Statement Alternatives, emphasis (strike-through) indicates strike-through text in the original document, and strong emphasis (bold) indicates bold red underlined text in the original document.]

March FOMC Statement--Alternative A

1. Information received since the Federal Open Market Committee met in December January confirms that the economic recovery is continuing. , though at a rate that has been insufficient to bring about a significant improvement in Although overall conditions in the labor market conditions appear to be improving gradually, employment remains at low levels. Growth in Household spending has been increasing in recent months picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Recent increases in energy costs may be weighing on household spending on non-energy goods and services. Business spending on equipment and software is rising, while but investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although energy and other commodity prices have risen significantly since the summer, boosting headline inflation, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trended ing downward.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow downside risks to the economic outlook remain significant.
3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust is prepared to expand and extend the purchase program the program as if needed to best foster maximum employment and price stability.
4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to currently anticipates that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2012 for an extended period.
5. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

March FOMC Statement--Alternative B

1. Information received since the Federal Open Market Committee met in December January suggests confirms that the economic recovery is on a somewhat firmer footing, and continuing, though at a rate that has been insufficient to bring about a significant improvement in overall conditions in the labor market conditions appear to be improving gradually. Growth in Household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit and business investment in equipment and software is rising continue to expand. However, while investment in nonresidential structures is still weak, and Employers remain reluctant to add to payrolls. the housing sector continues to be depressed. Although Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward subdued.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains is elevated, and measures of underlying inflation are continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are temporarily putting upward pressure on headline inflation. The Committee expects limited pass-through to underlying inflation, but it will pay close attention to the evolution of overall inflation and inflation expectations. Although The Committee continues to anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011[, a pace of about $80 billion a month]. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
5. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

March FOMC Statement--Alternative C

1. Information received since the Federal Open Market Committee met in December January confirms that the economic recovery is strengthening and conditions in the labor market are improving. continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in Household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit and business investment in equipment and software continue to expand. spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. However, the housing sector continues to be depressed. Although Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward subdued.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is remains elevated, and measures of underlying inflation are continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are temporarily putting upward pressure on headline inflation. The Committee expects limited pass-through to underlying inflation, but it will pay close attention to the evolution of overall inflation and inflation expectations. Although The Committee continues to anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
3. To support the promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. However, in light of incoming economic information, the Committee will gradually reduce the pace of its purchases of longer-term Treasury securities with the intention of limiting the increase in its holdings to a total of $450 billion by the end of the second quarter of 2011--$150 billion less than announced in November. In particular For the time being, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will continue to regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
4. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for some time an extended period.
5. The Committee will continue to monitor the economic outlook and financial developments, and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

January 2011 FOMC Directive

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 from 0 to ¼ percent. The Committee directs the Desk to execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. 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.

[Note: In the March 2011 FOMC Directive Alternatives, emphasis (strike-through) indicates strike-through text in the original document, and strong emphasis (bold) indicates bold red underlined text in the original document.]

March 2011 FOMC Directive -- Alternative A

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 from 0 to ¼ percent. The Committee directs the Desk to execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. 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.

March 2011 FOMC 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 from 0 to ¼ percent. The Committee directs the Desk to execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. 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.

March 2011 FOMC 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 seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 $2.5 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. 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.

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