Presentation Materials (PDF)

Pages 228 to 281 of the Transcript

Appendix 1: Materials used by Ms. Yellen

Material for
Action on Proposed Adjustments to External Communications Policy for System Staff

June 19, 2012

Class I FOMC - Restricted Controlled (FR)

FOMC Policy on External Communications of Federal Reserve System Staff¹

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

Preamble

In the course of making monetary policy decisions, the Federal Open Market Committee (FOMC) makes extensive use of background materials prepared by the staff of the Federal Reserve System, and senior staff give regular briefings at FOMC meetings. In addition, staff are directly involved in the implementation and communication of the Committee's policy decisions.

Federal Reserve System staff have contacts with members of the public in the process of gathering information about current economic and financial conditions. In addition, staff synthesize that information using a variety of analytical methods and statistical tools, and the continual refinement of these methods and tools is facilitated by ongoing interactions with academic researchers, staff at foreign central banks, and other outside analysts. Finally, staff play a significant role in helping the public understand the rationale for FOMC decisions. The principles described below recognize the importance of these activities for monetary policymaking and are not intended to inhibit the staff from conducting or broadly disseminating economic research or from carrying out other appropriate communications with members of the public.

To reinforce the public's confidence in the transparency and integrity of the monetary policy process, the FOMC has established the following principles to govern the public contacts of Federal Reserve System staff who have access to confidential FOMC information.² The FOMC maintains responsibility for ensuring that all System staff with such access abide by these principles. Specifically, the President of each Federal Reserve Bank is responsible for ensuring the confidentiality of FOMC information at that Bank and for the conduct and discretion of that Bank's staff with regard to the use of that information, and the Chairman fulfills this role for Board staff.

General Principles

1. Federal Reserve staff play a significant role in enhancing public understanding of the FOMC's actions, thereby promoting the effectiveness of monetary policy. In all communications with the public regarding monetary policy issues, members of the official staff should refrain from publicly expressing their own personal opinions or predictions views regarding prospective monetary policy decisions and should never speculate about future monetary policy decisions or actions that have not been announced by the Committee. In explaining the rationale for announced FOMC decisions, staff should draw on Committee communications, the Chairman's press conference remarks, and other published materials as appropriate. Whenever staff make public comments on monetary policy, they should clearly indicate that those comments are solely their own responsibility and should not be interpreted as necessarily representing the views of the FOMC, its principals, or any other person associated with the Federal Reserve System.
2. To foster the ongoing frank exchange of views at FOMC meetings, staff will refrain from characterizing such discussions--apart from what has been published in the minutes of each FOMC meeting--in any contact with an individual, firm, or organization outside of the Federal Reserve System.
3. To protect the independence of the FOMC's decision‐making process from short‐term political pressures, members of the official staff of the Board and Reserve Banks will follow their respective codes of conduct regarding partisan political activities and strive to avoid any appearance of political partisanship when discussing economic or policy issues in their contacts with the public.
4. Staff will carefully safeguard all confidential FOMC information.³ No confidential information may be released except pursuant to Committee instructions or with written authorization from the Chairman and prompt notification to the Committee.
5. To ensure that no member of the public is able to profit financially from acquiring nonpublic information about economic and financial conditions or about the methods and tools that are currently being used to assess those conditions, staff will not provide such information to any individual, firm, or organization outside of the Federal Reserve System unless the information has been cleared for publication and is made widely available to the public. Unless the information has been made widely available to the public, Federal Reserve staff members will refrain from disseminating information outside the Federal Reserve System, such as information about economic and financial conditions or about the methods and tools that are currently being used to assess those conditions, that might allow an individual, firm, or organization to profit financially.
6. Staff will strive to ensure that their contacts with members of the public do not provide any profitmaking person, firm, or organization with a prestige advantage over its competitors. They will consider this principle carefully and rigorously in considering invitations to speak at meetings sponsored by profitmaking organizations and in scheduling meetings with anyone who might benefit financially from apparently‐exclusive contacts with Federal Reserve staff.
7. To facilitate the effectiveness of the Committee's policy deliberations and the clarity of its communications, staff will observe the blackout period on monetary policy communication that begins on the Tuesday morning of the week at midnight Eastern time seven days prior to each regularly-scheduled FOMC meeting and ends at midnight Eastern Time on the Thursday following next day after the meeting. During each blackout period, staff will refrain from providing information expressing their views or providing analysis to members of the public about macroeconomic or financial developments or about current or prospective monetary policy issues unless that information has already been cleared for publication and made widely available to the public prior to the blackout period. Staff will be able to carry out their responsibilities for public dissemination of published Federal Reserve data and System surveys and reports, including answering technical questions specific to a data release.
8. In carrying out their official responsibilities, Federal Reserve staff engage in certain closely‐held communications with other parts of the U.S. government, with foreign central banks and governments, and with international organizations such as the International Monetary Fund and the Bank for International Settlements. In communicating with individuals from such institutions, staff may exchange views on current economic and financial conditions or discuss policy‐related matters of interest to the Federal Reserve, including nonpublic information, and such communications are not subject to the blackout period described above. In all such interactions, however, no confidential FOMC information may be released except pursuant to Committee instructions or with written authorization from the Chairman and prompt notification to the Committee.

Practical Examples

To assist Federal Reserve System staff in understanding the application of these principles, the FOMC has considered how the principles should be applied to some common requests for public contact. For example, the following contacts would generally be consistent with the Committee's policy on external communications, as long as the staff member carefully adheres to all of the principles listed above during the contact itself:

1. A presentation at a widely‐attended meeting, where the event is organized by a non‐profit entity and does not involve fundraising. Such a meeting might be sponsored by an academic institution, non‐profit organization, or civic or trade association (such as a chamber of commerce or a state or national bankers' association).
2. A private meeting with members of the public--such as bankers, community representatives, industry representatives, or labor representatives--to collect information about current economic and financial conditions, without disseminating any information that is not widely available to the public. Whenever practical, at least two Federal Reserve staff should be present at such a meeting.
3. A working paper, presentation, or publication that evaluates the effectiveness of monetary policy actions taken in the past.
4. A discussion between Federal Reserve and Treasury staff (including during the blackout period) regarding recent economic and financial developments in a foreign economy, how to interpret them, and their implications for future developments.

In contrast, the following contacts would not be consistent with the principles set out above:

1. Disclosure of confidential FOMC information.
2. Disclosure or characterization of the views expressed at an FOMC meeting.
3. Disclosure of an FOMC participant's personal views on monetary policy that have not previously been communicated to the public.
4. Public communications in which a Federal Reserve officer staff member expresses personal opinions about prospective monetary policy decisions.
5. A prediction to members of the public about Committee action prior to the Committee's announcement of such decisions.
6. A private meeting with selected clients of a regulated entity or financial firm to discuss monetary policy.

Of course, the foregoing examples are not intended to serve as an exhaustive list, and hence good judgment will be essential in applying these principles. Moreover, whenever staff are unsure about whether specific contacts with the public would be appropriate, they should consult in advance with the appropriate staff person or with the head of their respective institution--namely, the Chairman in the case of staff at the Board of Governors, and the President in the case of staff at a Federal Reserve Bank.

Appendix 2: Materials used by Ms. Yellen

Material for
Discussion on Developing a Consensus Forecast and Quarterly Monetary Policy Report (QMPR)

June 19, 2012

Class I FOMC - Restricted Controlled (FR)

Questions for FOMC Discussion on Developing a Consensus Forecast and Quarterly Monetary Policy Report (QMPR)

June 19, 2012

1. Do you think that the development of an FOMC consensus forecast and QMPR would comprise a significant enhancement to the Committee's policy communications?
2. If the Committee decides to explore this initiative further, does it seem reasonable that the Chairman would consult with the Committee in developing the consensus forecast but would have ultimate responsibility for the consensus forecast and the accompanying narrative in the QMPR, which would also convey the diversity of participants' views?
3. Would it be worthwhile to conduct an experimental exercise in conjunction with the July FOMC meeting before deciding whether to proceed any further with this initiative?

Appendix 3: Materials used by Mr. Sack

Material for
Financial Market Developments and Desk Operations

Brian Sack
June 19, 2012

Class I FOMC - Restricted Controlled (FR)

Exhibit 1

Top-left panel
(1)

Title: Equity Prices
Series: S&P 500 Index, Euro Stoxx Index, MSCI Emerging Market Index
Horizon: April 1, 2011 - June 15, 2012
Description: The intermeeting pullback from riskier assets was evident in global equity prices; the S&P 500 Index fell over 2 percent over the period, and equity price declines in Europe and emerging markets were even steeper.

Top-right panel
(2)

Title: Commodity Prices
Series: Front-month Brent crude oil price per barrel, CRB Commodity Index
Horizon: April 1, 2011 - June 15, 2012
Description: Commodity prices, and crude oil in particular, fell significantly over the intermeeting period, reflecting further concerns about the global economic outlook.

Middle-left panel
(3)

Title: Macroeconomic Conditions That Would Prompt First Rate Hike
Series: 30-year, 10-year, and 2-year Treasury yields
Horizon: April 1, 2011 - June 15, 2012
Description: U.S. Treasury yields continued to decline over the period, with the ten- and thirty-year yields falling about 40 basis points.

Middle-right panel
(4)

Title: Term Premium for Ten-Year Treasury Yield
Series: Estimate of term premium embedded in zero-coupon ten-year Treasury yield, as estimated by Kim-Wright model
Horizon: January 1, 1997 - June 15, 2012
Description: A combination of flight-to-safety flows and anticipated Federal Reserve balance sheet actions pushed the estimated term premium further below its historical average, as the Kim-Wright term premium estimate stands at around -80 basis points.

Bottom-left panel
(5)

Title: Implied Federal Funds Rate Path
Series: Implied federal funds rate path derived from federal funds futures and eurodollar futures
Horizon: June 15, 2012 - December 31, 2015
Description: The expected path of the federal funds rate decreased over the intermeeting period, with the market now pricing in more significant odds that the rate will not begin to rise until late 2014 or early 2015.

Bottom-right panel
(6)

Title: Probability Distribution of First Increase in Federal Funds Target Rate
Series: Average probabilities of first increase in federal funds target rate by half-year, as assessed in April and April June Reserve Bank of New York Surveys of primary dealers
Horizon: H1 2012 - ≥ H2 2016
Description: Dealer survey respondents place sizable odds on policy remaining on hold for a long period, with the distribution of expectations for the first federal funds target rate increase shifting out even further over the intermeeting period. While dealers continue to assign the highest probability to the first increase in the federal funds rate coming in the second half of 2014, the distribution now shows greater odds assigned to even later lift-off dates.

Exhibit 2

Top-left panel
(7)

Title: Greek Borrowing from Central Bank as Percent of Banking Sector Liabilities
Series: Greek bank borrowing from ECB and Bank of Greece (including regular ECB operations and funding under ELA arrangements) as percent of Greek banking sector liabilities
Horizon: June 1, 2008 - April 30, 2012
Description: Greece is dependent on the Eurosystem's willingness to provide liquidity to its banks, as Greek bank obligations to the Eurosystem total nearly 1/3 of bank liabilities.

Top-right panel
(8)

Title: Euro Area Sovereign Debt Spreads
Series: Spanish and Italian 10-year spreads to Germany
Horizon: April 1, 2011 - June 15, 2012
Description: Sovereign debt spreads for peripheral European countries have increased significantly in the past two months, with Spanish spreads now somewhat higher than Italian spreads.

Middle-left panel
(9)

Title: Bank Holdings of Domestic Sovereign Debt (Monthly Changes)
Series: Monthly changes in Spanish, Italian bank holdings of domestic sovereign debt
Horizon: 2010 - April 2012
Description: Spanish and Italian banks increased their holdings of own-country sovereign debt earlier in the year. However, those purchases slowed in April toward longer-term averages, indicating that those banks may be reluctant to increase their holdings further.

Middle-right panel
(10)

Title: Euro-Dollar Exchange Rate
Series: Spot euro-dollar exchange rate
Horizon: April 1, 2011 - June 15, 2012
Description: The broad deterioration in investor sentiment towards the euro area has put significant downward pressure on the exchange value of the euro against the dollar, particularly over the most recent intermeeting period.

Bottom-left panel
(11)

Title: Dollar Funding Spreads to OIS
Series: 3-month euro Libor rate swapped to dollars, 3-month 3-month forward Libor, 3-month spot Libor
Horizon: April 1, 2011 - June 15, 2012
Description: Despite the risks surrounding the euro area, widespread signs of stress have not emerged in short-term funding markets. Dollar funding markets generally remained stable over the intermeeting period.

Bottom-right panel
(12)

Title: U.S. Financial CDS Spreads
Series: Five-year CDS spreads for Morgan Stanley, Goldman Sachs, Citigroup, J.P. Morgan
Horizon: April 1, 2011 - June 15, 2012
Description: CDS spreads for U.S. financial institutions widened over the intermeeting period.

Exhibit 3

Top-left panel
(13) Operations for Maturity Extension Program (Through 06/18/12)

Top-right panel
(14)

Title: Probability of Additional Policy Actions
Series: Federal Reserve Bank of New York survey additional policy action responses by primary dealers
Horizon: Current meeting, 1 year
Description: The Desk's primary dealer survey shows that market participants see high probabilities of further policy steps over the coming year, with meaningful probabilities assigned to this meeting. Specifically, the median respondent saw a 35 percent chance of a further increase in the duration of the SOMA portfolio at this meeting and a 25 percent chance of an increase in the size of the portfolio. The chance of the FOMC taking at least one of those two actions at this meeting was put at 50 percent.

Middle-left panel
(15)

Title: SOMA Treasury Holdings (Par Values)
Series: Pre-MEP and projected end-June SOMA holdings with 0-3 years to maturity, with 3-6 years to maturity, and with 6-30 years to maturity
Horizon: September 30, 2011 & June 30, 2012
Description: SOMA holdings of securities with remaining maturities of 3 years or less will have declined about 70 percent by the end of June as a result of the current MEP, to around $200 billion. Meanwhile, holdings of securities with 3 to 6 years to maturity will have increased slightly, while those with greater than 6 years to maturity will have increased to nearly $900 billion.

Middle-right panel
(16) SOMA Treasury Holdings as Percent of Outstanding

Percent

Bottom-left panel
(17)

Title: Shorter-Term Interest Rates
Series: 2-year Treasury yield, overnight Treasury repo rate, federal funds rate
Horizon: July 1, 2011 - June 15, 2012
Description: The Treasury repo rate has risen gradually over the course of this year to around 25 basis points, and the federal funds rate has been pulled up as well, rising to over 15 basis points most recently. The 2-year Treasury yield has remained at roughly 30 basis points.

Bottom-right panel
(18)

Title: SOMA Portfolio Holdings
Series: SOMA portfolio size: realized values, and values as projected by median dealer in Federal Reserve Bank of New York survey for group of dealers expecting an LSAP and group not expecting an LSAP
Horizon: January 1, 2007 - January 1, 2017
Description: The median survey response among dealers expecting further Federal Reserve balance sheet expansion over the next couple years indicated a belief that that LSAP would be just above $500 billion in size. Meanwhile, those not expecting an LSAP see the portfolio size leveling off and beginning to decline over the next few years.

Appendix 4: Materials used by Messrs. Bowman, Lebow, and Palumbo

Material for:
Staff Presentation on the Economic Outlook

June 19-20, 2012

Class II FOMC - Restricted (FR)

Exhibit 1
Euro-Area Baseline

Top-left panel
Contributions to GDP Growth

Percent change, annual rate

Top-right panel
Composite PMIs

50+ = expansion

Middle-left panel
Staff Euro-area GDP Forecast

Percent change, annual rate

Middle-right panel
General Government Debt to GDP

Percent of annualized GDP

Bottom-left panel
Baseline Assumptions

• Any Greek exit some time off, allowing time to prepare
• Financial stresses increase before Europe takes new action
• European leaders do just enough this year to contain the crisis:
  • ECB offers further liquidity measures
  • Gradual progress on fiscal and financial union
  • Full EU/IMF packages for Spain and Italy if needed

Bottom-right panel
Projected Euro-area GDP Growth

Percent

Exhibit 2
Euro-Area Risks

Top panel
Potential Sources of Risk

• Greek Exit
  • Could prompt sharper deterioration in financial conditions
• Deposit Runs
  • Spanish deposits and external liabilities already declining
  • June 9 package likely sufficient to cover NPLs, but not prevent a run
  • About €2 Billion in Spain's deposit insurance fund
  • National insurance schemes cannot protect against redenomination
• TARGET2 Balances
  • Creditor countries could seek to limit ECB funding of these balances
• Runs on Sovereign Debt
  • EU/IMF funds may be inadequate if more countries come under pressure

Middle-left panel
GDP Performance

Peak = 100

Middle-center panel
Deposits and External Liabilities

Basic points

Middle-right panel
Bank CDS Premiums

Millions of square meters

Bottom-left panel
Target2 Balances

Millions of square meters

Bottom-right panel
10-year EFSF Spread

Basic points

Exhibit 3
Global Outlook

Top-left panel
Real GDP*

Top-right panel
Policy Rates

Percent

Middle-left panel
Chinese Indicators

12-month percent change

Middle-center panel
China: Unsold Floor Space

Millions of square meters

Middle-right panel
2012 Chinese GDP Forecasts

Percent change

Bottom-left panel
Brazilian and Indian GDP

Percent change, annual rate

Bottom-right panel
Mexico

Jan. 2008 = 100

Exhibit 4
Commodities and Trade

Top-left panel
December 2012 Oil Prices

Millions of square meters

Top-center panel
Oil

Top-right panel
Nonfuel Commodities

Jan. 2010 - 100

Middle-left panel
Broad Real Dollar

2009:Q1 = 100

Middle-right panel
Trade in Real Goods and Services

Bottom-left panel
U.S. Real Exports

Bln 2005 USD

Bottom-center panel
Euro-area GDP

2011:Q2 = 100

Bottom-right panel
Broad Nominal Exchange Rate

2011:Q2 = 100

Exhibit 5
Recent U.S. Indicators

Top-left panel
Change in Private Payroll Employment

Thousands of employees

Insert: Unemployment rate

Percent

Top-right panel
Manufacturing IP

Percent change, annual rate

Middle-left panel
Real Personal Consumption Expenditures

Billions of chained (2005) dollars

Insert:

Percent change a.r.

Middle-right panel
Consumer Confidence

Index, scaled by standard deviation

Bottom-left panel
Real Government Purchases

Billions of chained (2005) dollars

Bottom-right panel
Real GDP

Percent change, annual rate

Exhibit 6
Europe and the Medium-term Outlook

Top-left panel
Effects of Europe on the June Tealbook

Adverse:

• Dollar stronger
• Foreign growth weaker
• Equity prices lower

Mitigating

• Oil prices lower
• Interest rates lower

Top-right panel
Real GDP

Four-quarter percent change

Middle-left panel
U.S. Unemployment Rate

Percent

Middle-right panel
European Crisis with Severe Spillovers

Severe crisis in Europe leads to

• Sizable appreciation of the dollar
• Sharply wider U.S. bond spreads
• Much weaker stock market
• Erosion in household and business confidence

Bottom-left panel
Alternative Simulation: Euro-area GDP

Four-quarter percent change

Bottom-right panel
Alternative Simulation: U.S. Unemployment Rate

Percent

Exhibit 7
Fiscal Cliff

Top panel
Fiscal Assumptions in the Tealbook

In the baseline

• Payroll tax cut and EUC program expire
• Discretionary spending restrained by caps and by reduce defense spending
• Gradual deficit-reduction policies in place of sequestration
• 2001-03 tax cuts and AMT relief extended

In the fiscal cliff alternative

• 2001-03 tax cuts expire
• AMT relief expires
• No Medicare doc fix
• Full sequestration

Middle-left panel
Alternative Simulation: Federal Fiscal Impetus

Contribution to real GDP growth, p.p.

Middle-right panel
Alternative Simulation: Real GDP

Four-quarter percent change

Bottom-left panel
Alternative Simulation: Unemployment Rate

Percent

Bottom-right panel
Alternative Simulation: Federal Funds Rate

Percent

Exhibit 8
Inflation Projection

Top-left panel
Crude Oil Prices

Dollars per barrel

Top-right panel
PCE Prices

12-month percent change

Middle-left panel
Core Nonfuel Import Prices

2005 = 100

Middle-right panel
Inflation Expectations

Percent

Percent

Percent

Bottom-left panel
Measures of Hourly Compensation

Four-quarter percent change

Bottom-right panel
PCE Price Projection

Exhibit 9
Household Credit Conditions

Top-left panel
Consumer Credit

Percent change from a year earlier

Top-right panel
Newly Originated Auto Loans

Percent of households with a new loan

Middle-left panel
Offered Spreads on Credit Card Loans

Percentage points

Middle-right panel
Credit Card Limits

Billions of dollars

Bottom-left panel
Credit Scores on New Prime Mortgages

FICO Score

Bottom-right panel
Prime Mortgage Loan Rates and Refinance Activity

Percentage points

Exhibit 10
Risks to U.S. Financial Stability

Top-left panel
Risks Emanating from Europe

• Greek exit from euro a real possibility
• Mounting pressures on Spain and its banks
• Scenarios could include:
  • Runs on banks
  • Imposition of capital controls

Top-right panel
Key Vulnerability

• Redenomination could stress European payment and settlement systems
• Could disrupt market functioning and impair credit intermediation
• Market participants report increased attention to exposures to counterparties and other FMUs

Middle-left panel
Stock Prices for Select LISCC Firms

Index, July 1, 2011 = 100

Middle-right panel
5-Year CDS Premiums for Select LISCC Firms

Bottom-left panel
Indicator of Systemic Risk: Distressed Insurance Premium

• Cost of hypothetical insurance to cover losses should a systemic shock be realized
• Keys off of firms' size, CDS spreads, and correlation among asset prices

Bottom-right panel
Distressed Insurance Premium

Billions of dollars

Exhibit 11
Commercial Paper and Money Market Mutual Funds

Top-left panel
Commercial Paper Outstanding

Billions of dollars

Top-right panel
Financial CP and ABCP Outstanding by Country of Parent

Billions of dollars

Middle panel
Taxable Institutional Money Market Fund Assets

Billions of dollars

Bottom-left panel
U.S. Prime MMF Exposures to Europe

Percent of prime MMF assets

Bottom-right panel
Maturity Distribution of Prime MMF Euro-zone Holdings

Billions of dollars

Exhibit 12
U.S. Asset Valuations: Pressures and Risks

Top-left panel
S&P 500 Equity Valuations

Billions of dollars

Top-right panel
Equity Options-Implied Cost of Insurance

Cents

Middle-left panel
Near-and Far-term Forward Spreads BB-rated Corporate Bonds

Percentage points

Middle-right panel
Gross Corporate Bond Issuance

Billions of dollars, monthly rate

Bottom panel
Risks to Asset Values

Europe

• Prices of risky assets would likely plunge in more severe European scenarios
• Reduction in liquidity may compound increase in volatility
• But low levels of leverage and large cash cushions could reduce somewhat forced asset sales

Prolonged low interest rates

• Institutional investors reportedly have appetite for corporate credit
• Also generating yield lending againts less-liquid collateral
• But scale of these activities appears moderate

Appendix 5: Materials used by Ms. Meade

Material for Briefing on the:
Summary of Economic Projections

Ellen E. Meade
June 19, 2012

Class I FOMC - Restricted Controlled (FR)

Exhibit 1. Central tendencies and ranges of economic projections, 2012-14 and over the longer run

Change in real GDP

Unemployment rate

PCE inflation

Core PCE inflation

Exhibit 2. Overview of FOMC participants' assessments of appropriate monetary policy

Appropriate Timing of Policy Firming

Appropriate Pace of Policy Firming

Exhibit 3. Scatterplot of unemployment and PCE inflation rates in the liftoff year (in percent)

Exhibit 4. Economic projections for 2012-2014 and over the longer run (percent)

Change in real GDP

Unemployment rate

PCE inflation

Core PCE inflation

Exhibit 5. Uncertainty and risks in economic projections

Histograms, eight panels.

Uncertainty about GDP growth

Uncertainty about the unemployment rate

Uncertainty about PCE inflation

Uncertainty about core PCE inflation

Risks to GDP growth

Risks to the unemployment rate

Risks to PCE inflation

Risks to core PCE inflation

Appendix 6: Materials used by Mr. English

Material for:
FOMC Briefing on Monetary Policy Alternatives

Bill English
June 20, 2012

Class I FOMC - Restricted Controlled (FR)

April FOMC Statement

1. Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.
3. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
4. The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

[Note: In the June 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.]

June FOMC Statement--Alternative A

1. Information received since the Federal Open Market Committee met in March April suggests that the economy has been expanding moderately this year. Labor market conditions have improved However, growth in employment has slowed notably in recent months, and the unemployment rate has declined but remains elevated. Household spending and Business fixed investment have has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up declined somewhat more than anticipated, mainly reflecting higher lower prices of crude oil and gasoline, However, while longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and The Committee anticipates that subsequently inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

3. The Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to will keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant maintaining exceptionally low levels for the federal funds rate at least through [ late 2014 | mid-2015 ] in order to support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate.

4. The Committee also decided to continue its purchase an additional [ $500 ] billion of agency mortgage-backed securities by the end of June 2013. This program should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. The Committee will complete this month the program to extend the average maturity of its holdings of securities as that it announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings take further action as appropriate to promote a stronger economic recovery and more rapid improvement in labor market conditions in a context of price stability.

OR

4′. The Committee also decided to continue its begin purchasing additional agency mortgage-backed securities, initially at a rate of about [ $40 ] billion per month. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate adjust the pace of purchases and determine the ultimate size of the program as needed to promote a stronger economic recovery and more rapid improvement in labor market conditions in a context of price stability. This program should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. The Committee will complete this month the program to extend the average maturity of its holdings of securities as that it announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

5. [ The situation in Europe remains a source of stress in global financial markets. The Committee will continue to closely monitor European developments and their potential consequences for the economic recovery. The Federal Reserve will deploy its tools as necessary to address the effects of global financial strains on the U.S. financial system and economy. ]

June FOMC Statement--Alternative B

1. Information received since the Federal Open Market Committee met in March April suggests that the economy has been expanding moderately this year. Labor market conditions have improved However, growth in employment has slowed in recent months, and the unemployment rate has declined but remains elevated. Household spending and Business fixed investment have has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat declined, mainly reflecting higher lower prices of crude oil and gasoline, However, and longer-term inflation expectations have remained stable.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and The Committee anticipates that subsequently inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.
3. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
4. The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in September. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative. The Committee is maintaining its existing policies policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
5. [ The situation in Europe remains a source of stress in global financial markets. The Committee will continue to closely monitor European developments and their potential consequences for the economic recovery. The Federal Reserve will deploy its tools as necessary to address the effects of global financial strains on the U.S. financial system and economy. ]

June FOMC Statement--Alternative B′

1. Information received since the Federal Open Market Committee met in March April suggests that the economy has been expanding moderately this year. Labor market conditions have improved However, growth in employment has slowed in recent months, and the unemployment rate has declined but remains elevated. Household spending and Business fixed investment have has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed.
2. The Committee [ expects | sees it as most likely ] that economic growth to will remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually only slowly toward levels that it judges to be consistent with its dual mandate.
3. Inflation has picked up somewhat declined, mainly reflecting higher lower prices of crude oil and gasoline. However, Longer-term inflation expectations have remained stable. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily and The Committee [ anticipates | views it as most likely ] that subsequently inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.
4. In the Committee's assessment, the risks to the outlook for growth in output and employment are primarily to the downside, while the risks to the outlook for inflation are roughly balanced. Strains in global financial markets continue to pose significant downside risks to the economic outlook for economic activity; these risks have become somewhat greater since earlier this year. The risk of a sharp increase in the prices of oil and other commodities, which could lead to temporarily higher inflation and temporarily weaker growth, has diminished recently.
5. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, The Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
6. The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in September. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative. The Committee is maintaining its existing policies policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.
7. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee's action today is intended to support a stronger economic recovery and mitigate downside risks, thereby fostering a faster return of the unemployment rate to mandate-consistent levels, while maintaining inflation near its 2 percent objective in the medium term. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
8. [ The situation in Europe remains a source of stress in global financial markets. The Committee will continue to closely monitor European developments and their potential consequences for the economic recovery. The Federal Reserve will deploy its tools as necessary to address the effects of global financial strains on the U.S. financial system and economy. ]

June FOMC Statement--Alternative C

1. Information received since the Federal Open Market Committee met in March April suggests that the economy has been expanding moderately, and labor-market conditions have improved, on balance, this year in recent months. The unemployment rate has declined but remains elevated. Household spending and business fixed investment have Private domestic demand has continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up declined somewhat, mainly reflecting higher lower prices of crude oil and gasoline, However, and longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and The Committee anticipates that subsequently inflation over the medium term will run at or below about the rate that it judges most consistent with its dual mandate.

3. To support a stronger sustainable economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late [ 2014 | 2013 ].

OR




3′. To support a stronger sustainable economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. As rates of resource utilization rise toward levels consistent with maximum employment, the Committee eventually will need to make monetary policy less accommodative in order to ensure that the economy expands at a sustainable pace and to prevent inflation from persistently exceeding its longer-run objective. In determining the appropriate time to increase its target for the federal funds rate, the Committee will consider a range of factors, including actual and projected labor market conditions, the medium-term outlook for inflation, and the risks to the achievement of the Committee's objectives.

4. The Committee also decided to continue its complete at the end of this month the program to extend the average maturity of its holdings of securities as that it announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate necessary to promote a stronger economic recovery in a context of maximum employment and price stability.

April 2012 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 continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities into new issues and of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. 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.

June 2012 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 continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. [ The Committee also directs the Desk to execute purchases of agency mortgage-backed securities by the end of June 2013 in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $3.1 trillion. | The Committee also directs the Desk to execute purchases of agency mortgage-backed securities in order to increase the total face value of domestic securities held in the System Open Market Account by approximately $40 billion per month. ] The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities into new issues and of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. 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.

June 2012 Directive--Alternative B or 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 continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. Following the conclusion of these purchases, the Committee directs the Desk to purchase Treasury securities with remaining maturities of 6 years to 30 years with a total face value of about $267 billion by the end of December 2012, and to sell or redeem Treasury securities with remaining maturities of approximately 3 years or less with a total face value of about $267 billion. For the duration of this program, the Committee directs the Desk to suspend its current policy The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities into new issues. and The Committee directs the Desk to maintain its existing policy of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities. in order to These actions should maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. 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.

June 2012 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 continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities into new issues and of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. 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.

Appendix 7: Materials used by Mr. Sack

Material for:
FOMC Presentation: Operational Plan for Maturity Extension and Reinvestment Initiatives

Class II FOMC - Restricted (FR)

Statement Regarding Continuation of the Maturity Extension Program

On June 20, 2012, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to continue through the end of the year its program to extend the average maturity of the Federal Reserve's holdings of Treasury securities. Specifically, the Desk was directed to purchase Treasury securities with remaining maturities of 6 years to 30 years and to sell or redeem an equal par value of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program will proceed at the current pace, adding about $267 billion to the overall size of the program by the end of 2012.

The FOMC also directed the Desk to continue reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities (MBS) in agency MBS, and to suspend, for the duration of the maturity extension program, rolling over maturing Treasury securities into new issues at auction.

Purchases of Treasury securities for the maturity extension program will be distributed across five sectors using the same approximate weights that have been used in the purchases to date:

This distribution could be altered if market conditions warrant.

A combination of sales and redemptions of Treasury securities will be conducted to match the amount of purchases over the program. Sales of Treasury securities will take place in securities maturing between January 2013 and January 2016. Securities maturing in the second half of 2012 will be redeemed - that is, allowed to mature without reinvestment - since redeeming maturing Treasury securities has a nearly identical effect on the portfolio as selling securities nearing maturity. Once the maturity extension program is completed, the Federal Reserve will hold almost no securities maturing through January 2016.

The Desk will continue to publish a tentative schedule of operations for the following calendar month on or around the last business day of each month. The schedule will include the anticipated amount of redemptions, purchases and sales to be conducted, operation dates, settlement dates, security types (nominal coupons or TIPS) to be purchased or sold, the maturity date range of eligible issues, and an expected range for the size of each operation. The next schedule of operations will be released on Friday, June 29. All other program details remain the same at this time.

Additional details on the program's structure can be found in the revised Frequently Asked Questions for the Maturity Extension Program.

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