Presentation Materials (PDF)

Pages 218 to 244 of the Transcript

Appendix 1: Materials used by Mr. Sack

Material for
FOMC Presentation: Financial Market Developments and Desk Operations

Brian Sack
April 26, 2011

Class II FOMC - Restricted FR

Exhibit 1

Top-left panel
(1)

Title: Implied Federal Funds Rate Path
Series: Future federal funds rates implied by Eurodollar and federal funds futures contracts
Horizon: 03/14/11 and 04/21/11
Description: The implied federal funds rate path did not change much during the intermeeting period.

Source: Federal Reserve Bank of New York

Top-right panel
(2)

Title: Commodity Prices
Series: Brent oil front-month futures contract and Thomson Reuters/Jefferies CRB Commodity Index
Horizon: August 3, 2009 - April 21, 2011
Description: During the intermeeting period the Brent oil and the commodities index rose.

Source: Bloomberg

Middle-left panel
(3)

Title: Forward Breakeven Inflation Rates (5-Year 5-Year Rates)
Series: Federal Reserve Board rate and Barclays Capital rate
Horizon: August 3, 2009 - April 21, 2011
Description: During the intermeeting period both measures of the 5-year 5-year inflation rate rose.

Source: Federal Reserve Board of Governors, Barclays Capital

Middle-right panel
(4)

Title: Treasury Yields
Series: 2-year, 5-year, and 10-year Treasury yields
Horizon: August 3, 2009 - April 21, 2011
Description: Treasury yields ended the period slightly higher than their levels at the time of the last FOMC meeting.

Source: Bloomberg

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(5) Market Reaction to S&P Announcement

*Change from 9 to 9:30 AM   Return to table

**Change from 9 AM to close   Return to table

***Change computed from futures prices.   Return to table

Source: Bloomberg

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(6)

Title: Treasury Debt Outstanding
Series: Current Debt Limit and amount of outstanding Treasury debt
Horizon: October 1, 2010 - July 29, 2011
Description: The estimate is that Treasury will reach the debt limit in mid-July.

Source: Federal Reserve Board of Governors

Exhibit 2

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(7)

Title: Japanese Equity Prices
Series: Nikkei Index
Horizon: November 1, 2010 - April 22, 2011
Description: The Nikkei fell dramatically after the earthquake and nuclear problems and has not yet retraced.

Source: Bloomberg

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(8)

Title: Japanese Yen
Series: USDJPY index
Horizon: November 1, 2010 - April 22, 2011
Description: The yen strengthened sharply in the immediate aftermath of the earthquake.

Source: Bloomberg

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(9)

Title: Euro Area Sovereign Debt Spreads
Series: Greece, Portugal, Spain, and Italy 2-year spreads to Germany
Horizon: August 3, 2009 - April 21, 2011
Description: Sovereign debt yield surged in Greece and Portugal during the intermeeting period.

Source: Bloomberg

Middle-right panel
(10)

Title: Foreign Exchange Rates
Series: Euro/Dollar and Broad Dollar Index
Horizon: August 3, 2009 - April 21, 2011
Description: The euro appreciated again the dollar, while the broad dollar depreciated.

Source: Federal Reserve Board of Governors, Bloomberg

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(11)

Title: U.S. Equity Prices
Series: US KBW Bank Index and S&P 500
Horizon: August 3, 2009 - April 21, 2011
Description: The S&P 500 rose during the intermeeting period, while the US Bank Index fell.

Source: Bloomberg

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(12)

Title: VIX Index
Series: VIX Index
Horizon: August 3, 2009 - April 21, 2011
Description: Uncertainty about the outlook has diminished since the Japanese earthquake.

Source: Bloomberg

Exhibit 3

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(13)

Title: SOMA Purchases of Treasury Securities
Series: LSAP 2 purchases and reinvestments
Horizon: June 2010 - November 2011
Description: Assuming LSAP 2 ends at the end of June and reinvestments continue, the Desk's purchases would decline to an average pace of about $10 billion per month.

Source: Federal Reserve Bank of New York

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(14) SOMA Portfolio

* Holdings in $ billions  Return to table

Source: Federal Reserve Bank of New York

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(15)

Title: Change in MBS Spreads
Series: Option-adjusted spreads for 4.0%, 4.5%, 5.0%, and 5.5% coupons for the two day window and change to date
Horizon: Change from 03/18/11 to 03/22/11 and change from 03/18/11 to 04/21/11
Description: MBS spreads widened immediately after the Treasury's announcement and have since retraced.

Source: Barclays Capital

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(16)

Title: MBS Held in Official Portfolios
Series: U.S. Treasury and Federal Reserve portfolios
Horizon: 3.5% - 6.5% coupons
Description: The decision for the Federal Reserve to sell MBS could be more consequential for market pricing given the much larger size of the Federal Reserve's holdings.

Source: Federal Reserve Bank of New York, U.S. Treasury

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(17)

Title: Short Term Funding Rates*
Series: Treasury GC Repo rate and Federal Funds Effective rate
Horizon: August 3, 2009 - April 21, 2011
Description: Since the FDIC fee implementation both the Treasury GC repo and Fed Funds effective have fallen.

*5 day moving average   Return to text

Source: Federal Reserve Bank of New York

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(18)

Title: SOMA Securities Lending Volume
Series: 10-day moving average of securities lending
Horizon: August 3, 2009 - April 21, 2011
Description: There has been a significant pick-up in activity in the Desk's securities lending program.

Source: Federal Reserve Bank of New York

Exhibit 4

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(19) Expected Use of Exit Tools Relative to First Target Rate Increase (% of Respondents)*

* Views on agency debt sales and redemptions largely followed those for MBS.  Return to text

Source: Federal Reserve Bank of New York Policy Survey

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(20)

Title: Expected Timing of Exit Tools Relative to First Target Rate Increase
Series: "Extended period" language, IOER, RRPs, TDFs, Treasury redemptions, MBS redemptions, Treasury sales, and MBS sales
Horizon: 6 meetings before first target rate increase to 7 meetings after first rate increase
Description: Most survey respondents expect policy language to occur three meetings before the change in the target rate.

Source: Federal Reserve Bank of New York Policy Survey

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(21)

Title: Expected Size of Domestic Assets in SOMA
Series: Tealbook estimate, Median Policy Survey, and interquartile range
Horizon: Year-end 2009 to year-end 2015
Description: Expectations place the Federal Reserve's balance sheet on a gradual downward trajectory.

Source: Federal Reserve Bank of New York Policy Survey

Middle-right panel
(22)

Title: Level of Reserves at First Target Rate Increase
Series: Amount of reserves
Horizon: At first target rate increase
Description: The majority of respondents anticipate that reserve will be $1.2 trillion or higher at the time of the first increase in the target rate.

Source: Federal Reserve Bank of New York Policy Survey

Bottom-left panel
(23)

Title: Draining Capacity over Intermeeting Period
Series: RRPs, TDFs, and RRPs & TDFs
Horizon: Intermeeting period
Description: Respondents think that we could use the tools to drain $500 billion of reserve over a six-week period.

Source: Federal Reserve Bank of New York Policy Survey

Bottom-right panel
(24) Expected Spread between IOER Rate and Federal Reserve Rate (in BPS)*

* Median values  Return to text

Source: Federal Reserve Bank of New York Policy Survey

Appendix 2: Materials used by Mr. Nelson

Material for FOMC Briefing on Strategies for Removing Policy Accommodation

William R. Nelson
April 26, 2011

Questions for Discussion: Strategies for Removing Policy Accommodation

1. Should the first step in exit be to stop the current policy of reinvesting the principal payments from agency securities? Should that first step also include a halt to reinvestments of the principal payments from Treasury securities?
2. In removing policy accommodation would you prefer to put asset sales on a largely pre-determined and pre-announced path, or would you prefer to actively vary the pace of asset sales in response to changes in the economic outlook?
3. In sequencing actions to remove accommodation, would you favor starting to sell assets before, after, or at the same time as increasing the funds rate? Would you place a high priority on reducing the size of the SOMA portfolio quickly, even if that would delay liftoff of the funds rate?
4. Do you agree with each of the following statements?
   
   • The exit strategy should shrink the SOMA portfolio over the intermediate term to a level no larger than what is necessary to implement the Committee's monetary policy framework.
   • The exit strategy should return the SOMA portfolio to an all-Treasuries composition over the intermediate term, which will require sales of agency securities.
   • Asset sales should be implemented within a framework that has been communicated to the public in advance, and at a pace that potentially could be adjusted in response to changes in economic or financial conditions.

Appendix 3: Materials used by Mr. Sheets

Material for FOMC Briefing on International Developments

Nathan Sheets
April 26, 2011

Exhibit 1
Commodities: 2003 to 2008*

Futures Curves

Top-left panel
WTI Crude Oil

Source: Bloomberg.

Top-right panel
Copper

Source: Bloomberg.

Consensus Forecasts of Industrial Production

Bottom-left panel
China

Source: Consensus Economics.

Bottom-right panel
Emerging Asia excluding China

Source: Consensus Economics and staff estimates based on GDP weights.

* Each line represents futures prices or forecasts made in April of the indicated year.  Return to text

Appendix 4: Materials used by Mr. Natalucci

Material for Briefing on
FOMC Participants' Economic Projections

Fabio Natalucci
April 26, 2011

Actual values for years 2006 through 2010.

Note: The changes in real GDP and inflation are measured Q4/Q4

Exhibit 3. Risks and uncertainty in economic projections

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Uncertainty about GDP growth

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Risks to GDP growth

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Uncertainty about PCE inflation

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Risks to PCE inflation

Appendix 5: Materials used by Mr. English

Material for FOMC Briefing on Monetary Policy Alternatives

Bill English
April 27, 2011

March FOMC Statement

1. Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business spending on equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. 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 subdued.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains elevated, and measures of underlying inflation 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 currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.
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 April 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.]

April FOMC Statement--Alternative A

1. Information received since the Federal Open Market Committee met in January March suggests that the economic recovery is on a firmer footing proceeding at a moderate pace, albeit somewhat more slowly than had been anticipated, and that overall conditions in the labor market appear to be are improving only gradually. Household spending and business investment in equipment and software continue to expand, but increased energy costs may be weighing on consumer purchases of nonenergy goods and services. However Investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the last summer, and concerns about global supplies of crude oil have contributed to a sharp run up further increase in oil prices in recent weeks since the Committee met in March. Nonetheless, While inflation has picked up in recent months, longer-term inflation expectations have remained stable and measures of underlying inflation have been are still subdued.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, The unemployment rate remains elevated, and measures of underlying inflation 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 currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. Although the Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability, recent developments have increased the downside risks to the outlook for economic growth.
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 will complete to purchases of $600 billion of longer-term Treasury securities by the end of the second current 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 for an extended period at least through mid-2012.
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.

April FOMC Statement--Alternative B

1. Information received since the Federal Open Market Committee met in January March suggests indicates that the economic recovery is on a firmer footing proceeding at a moderate pace and overall conditions in the labor market appear to be are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the last summer, and concerns about global supplies of crude oil have contributed to a sharp run up further increase in oil prices in recent weeks since the Committee met in March. Nonetheless, Inflation has picked up in recent months, but longer-term inflation expectations have remained [generally] stable and measures of underlying inflation have been are still subdued.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, The unemployment rate remains elevated, and measures of underlying inflation 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 have pushed up inflation in recent months are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipates a gradual return to higher levels of resource utilization and a decline in inflation to rates consistent with the Federal Reserve's mandate in a context of price stability.
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 will complete purchases of $600 billion of longer-term Treasury securities by the end of the second current quarter of 2011. The Committee will regularly review the pace size and composition of its securities purchases holdings and the overall size of the asset purchase program in light of incoming information and will adjust the program is prepared to adjust those holdings 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.

April FOMC Statement--Alternative C

1. Information received since the Federal Open Market Committee met in January March suggests indicates that the economic recovery is on a firmer footing and overall conditions in the labor market appear to be are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run up further increase in oil prices in recent weeks since the Committee met in March. Nonetheless, Inflation has picked up in recent months, but longer-term inflation expectations have remained [generally] stable and measures of underlying inflation have been are still subdued.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, The unemployment rate remains elevated and measures of underlying inflation continue to be somewhat low, relative have moved somewhat closer to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. However, The recent increases in the prices of energy and other commodities are currently putting upward pressure on are boosting overall inflation. The Committee expects these effects to be transitory so long as longer-term inflation expectations remain stable, but and it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.
3. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate In light of incoming information, the Committee judges that the increase in its holdings of longer-term securities since November is sufficient to promote appropriate progress toward maximum employment and price stability. Accordingly, the Committee decided today to continue expanding complete only $450 billion of the intended $600 billion increase in its holdings of securities as announced in November. In particular For now, 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 needed its reinvestment policy and the level of its securities holdings in light of incoming information and will adjust the program make adjustments 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 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 for an extended period some time.
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 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 April 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.]

April 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.

April 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.

April 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 mid-May 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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