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Appendix 1: Materials used by Mr. Sack
April 27–28, 2010 173 of 206Authorized for Public Release
Material for
FOMC Presentation:Financial Market Developments and Desk Operations
Brian Sack
April 27, 2010
Class II FOMC - Restricted FR
April 27–28, 2010 174 of 206Authorized for Public Release
Class II FOMC – Restricted FR Exhibit 1
Source: Bloomberg
30
40
50
60
70
80
90
100
110
08/01/08 01/01/09 06/01/09 11/01/09 04/01/10
Indexed to 100= 8/1/08
S&P 500MSCI World
FOMC
(1) Equity Prices
0
200
400
600
800
1000
1200
0
500
1000
1500
2000
2500
08/01/08 01/01/09 06/01/09 11/01/09 04/01/10
BPSBPS
High Yield (LHS)Investment Grade (RHS)
FOMC
(3) Corporate Bond Spreads
Source: Bank of America
(4) CMBS Spreads
0
500
1000
1500
2000
2500
3000
3500
08/01/08 01/01/09 06/01/09 11/01/09 04/01/10
BPSJunior Mezzanine Super Senior
FOMC
Source: JP Morgan
0
200
400
600
800
1000
1200
1400
Portugal Ireland Greece Spain
BPS
Intermeeting Change
3/15/2010 Level
*2-yr yields. Source: Bloomberg
(6) Peripheral Euro-Area Yield Spreads to German Debt*
-20
-15
-10
-5
0
5
10
15
20
25
30
GS DB UBS JPM BAC WFC MS C Regional Bank Index
Percent
Change from 4/15/10 to 4/26/10
Change from 3/15/10 to 4/15/10
Source: Bloomberg
(5) Bank Equities
Source: Federal Reserve Board of Governors. Last observation is 04/21/10.
-4
-2
0
2
4
6
8
10
12
01/01/90 01/01/95 01/01/00 01/01/05 01/01/10
BPS (2) Equity Risk Premium
April 27–28, 2010 175 of 206Authorized for Public Release
-50
0
50
100
150
200
08/01/08 01/01/09 06/01/09 11/01/09 04/01/10
BPS
2-yr 10-yrFOMC
(10) Swap Spreads
Source: Bloomberg
Class II FOMC – Restricted FR Exhibit 2
0.5
1.5
2.5
3.5
4.5
08/01/08 01/01/09 06/01/09 11/01/09 04/01/10
Percent
2-yr 5-yr 10-yr FOMC
(9) Treasury Yields
Source: Bloomberg
2010 Q2
2011Q2
2012Q2
All 23% 24% 23%
Some 11% 26% 34%
None 66% 50% 43%
(12) Average Probability of Federal Reserve Treasury Redemption Policies
Tre
asu
ries
Red
eem
ed
Source: Federal Reserve Bank of New York Dealer Policy Survey
0
5
10
15
20
25
30
35
40
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Percent
Source: Federal Reserve Bank of New York Policy Survey, including responses from primary dealers and buy-side firms
(8) Average Probability Distribution of First Policy Rate Increase
0.0
0.5
1.0
1.5
2.0
2.5
04/01/10 08/01/10 12/01/10 04/01/11 08/01/11 12/01/11
Percent
4/23/10
3/15/10
(7) Implied Federal Funds Rate
Source: Federal Reserve Bank of New York
Source: Federal Reserve Bank of New York
-50
-30
-10
10
30
50
70
90
110
130
150
08/01/05 08/01/06 08/01/07 08/01/08 08/01/09
BPS
FOMC
(11) 10-Yr Treasury Term Premium
April 27–28, 2010 176 of 206Authorized for Public Release
Class II FOMC – Restricted FR Exhibit 3
-50
-25
0
25
50
75
100
01/01/09 06/01/09 11/01/09 04/01/10
BPS
OAS to Treasury
OAS to Swap
End of the LSAPs
(15) MBS Spreads*
* Fannie Mae fixed-rate current coupon spreads; Source: Barclays Capital
0
5
10
15
20
25
30
35
40
12/10/08 04/10/09 08/10/09 12/10/09 04/10/10
$ Billions
Agency
MBS
Source: Federal Reserve Bank of New York
(13) Weekly Pace of Purchases
(17) Probability of Asset Sales
Source: Federal Reserve Bank of New York Policy Survey, including responses from primary dealers and buy-side firms
0
10
20
30
40
50
60
$50 Bln Sales/Year
$150 Bln Sales/Year
$300 Bln Sales/Year
BPS
10-yr Treasury Yield
MBS Yield
(18) Impact on Yields from MBS Sales
Source: Federal Reserve Bank of New York Policy Survey, including responses from primary dealers and buy-side firms
-120
-100
-80
-60
-40
-20
0
Maximum Effect Current Effect Effect in 6 Months
BPS
10-yr Treasury Yield
MBS Yield
(16) Impact on Yields from Purchase Programs
Source: Federal Reserve Bank of New York Policy Survey, including responses from primary dealers and buy-side firms
Time Horizon
2 Yrs 5 Yrs
Treasuries 15% 25%
Agencies 20% 50%
MBS 25% 70%
0
200
400
600
800
1000
1200
1400
1600
1800
2000
01/01/08 08/01/08 03/01/09 10/01/09
$ Billions (14) MBS Weekly Trading Volumes*
*4-wk moving average. Source: FR2004 (1/2 interdealer + customer)
April 27–28, 2010 177 of 206Authorized for Public Release
Class II FOMC – Restricted FR Exhibit 4
0.00
0.05
0.10
0.15
0.20
0.25
10/01/09 12/01/09 02/01/10 04/01/10
Percent
Treasury GC
Fed Funds
(19) Treasury Repo and Fed Funds Rates
Source: Federal Reserve Bank of New York
0.00
0.05
0.10
0.15
0.20
0.25
400 600 800 1000 1200
Percent
Excess Reserves, $ Billions
1/2/09-3/2/10
3/3/10-4/23/10
(20) Excess Reserves and the Fed Funds Rate
Source: Federal Reserve Bank of New York
1.47
2.24
2.47
2.94
3.17
0 1 2 3 4
Increase in Primary Credit Rate
GSE Delinquent Buyouts
Decreases in Reserves
Increases in Treasury Supply
Announcement of SFP
*Ratings were constructed by assigning the following values: Not important=1, Somewhat Important=2, Important =3, Very Important=4. The weighted average was then taken to construct the average rating.
Source: Federal Reserve Bank of New York Dealer Policy Survey
(22) Factors Leading to Increase in Fed Funds Rate*
0.05
0.10
0.15
0.20
0.25
02/01/10 02/19/10 03/09/10 03/27/10 04/14/10
Percent
May Contract
April Contract
March Contract
(21) Fed Funds Futures Rates
Source: Bloomberg
April 27–28, 2010 178 of 206Authorized for Public Release
Appendix 2: Materials used by Mr. Madigan
April 27–28, 2010 179 of 206Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Material for Briefing on Strategies for Asset Sales and Redemptions Brian Madigan April 27, 2010
April 27–28, 2010 180 of 206Authorized for Public Release
Table 1: Possible Longer-Run Approaches to Redemptions and Asset Sales
Characteristics Assumed in the Staff Analysis
Treasury
Redemptions
Begin
Sales of agency-related securities
Conditionality
of Sales
Average pace
$billion/month Start Finish
Option 1: No asset sales None $0 N/A N/A N/A
Option 2: Asset sales after increase in target
May 3 $15 One quarter after target increase
Five years after sales commence
Moderate
Option 3: Conditional pace of sales
May 3 $15 Before increase in the target, but
increase in target under Option 3
would be later than under baseline.
Five years after sales commence, depending on developments
Strong
Option 4: Reverse taper May 3 $5 in 2011
$10 in 2012
$20 in 2013‐15
January 2011 December 2015 Virtually none
Option 5: Rapid sales May 3 $30 July 2010 June 2013 Limited
April 27–28, 2010 181 of 206Authorized for Public Release
Exhibit 2Balance Sheets
Greenbook-consistent Projections
2010 2012 2014 2016 2018 2020 750
1000
1250
1500
1750
2000
2250
2500Option 1Option 2Option 3Option 4Option 5Option 6*
SOMA holdings
$ BillionsMonthly
* Redemptions for Treasury and agency securities, redemptions and prepayments for agency mortgage-backed securities; no asset sales.
2010 2012 2014 2016 2018 2020 -250
0
250
500
750
1000
1250
1500Option 1Option 2Option 3Option 4Option 5Option 6
MBS holdings
$ BillionsMonthly
2010 2012 2014 2016 2018 2020 0
250
500
750
1000
1250
1500
1750
2000Option 1Option 2Option 3Option 4Option 5Option 6
Treasury holdings
$ BillionsMonthly
2010 2012 2014 2016 2018 2020 -250
0
250
500
750
1000
1250
1500Option 1Option 2Option 3Option 4Option 5Option 6
Reserve balances
$ BillionsMonthly
April 27–28, 2010 182 of 206Authorized for Public Release
Exhibit 3Macroeconomic Consequences Under Alternative
Balance Sheet StrategiesGreenbook-consistent Projections
2010 2011 2012 2013 2014 2015 20160
1
2
3
4
5
Option 1Option 2Option 5Option 6*
Federal funds rate
Percent
*Redemptions for Treasury and agency securities, redemptions and prepayments for agency mortgage-backed securities; no asset sales.
2010 2011 2012 2013 2014 2015 20163.0
3.5
4.0
4.5
5.0
5.5
6.0Option 1Option 2Option 5Option 6
10-year Treasury interest rate
Percent
2010 2011 2012 2013 2014 2015 20165.0
5.5
6.0
6.5
7.0
7.5
8.0Option 1Option 2Option 5Option 6
30-year mortgage rate
Percent
2010 2011 2012 2013 2014 2015 20162.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0Option 1Option 2Option 5Option 6
Real GDP growth*
Percent
*Q4/Q4 growth rate
2010 2011 2012 2013 2014 2015 2016 4
5
6
7
8
9
10Option 1Option 2Option 5Option 6
Unemployment rate
Percent
2010 2011 2012 2013 2014 2015 20160.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
Option 1Option 2Option 5Option 6
Core PCE inflation*
Percent
*Q4/Q4 growth rate
April 27–28, 2010 183 of 206Authorized for Public Release
Appendix 3: Materials used by Mr. Madigan
April 27–28, 2010 184 of 206Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Material for Briefing on FOMC Participants’ Economic Projections Brian Madigan April 27, 2010
April 27–28, 2010 185 of 206Authorized for Public Release
2
1
+_0
1
2
3
4
5
Percent
Exhibit 1. Central tendencies and ranges of economic projections, 2010–12 and over the longer run
Change in real GDP
Range of projections
Actual
2005 2006 2007 2008 2009 2010 2011 2012 Longerrun
Central tendency of projections
5
6
7
8
9
10
Percent
Unemployment rate
2005 2006 2007 2008 2009 2010 2011 2012 Longerrun
1
2
3
Percent
PCE inflation
2005 2006 2007 2008 2009 2010 2011 2012 Longerrun
1
2
3
Percent
Core PCE inflation
2005 2006 2007 2008 2009 2010 2011 2012
NOTE: Definitions of variables are in the notes to table 1. The data for the actual values of the variables are annual.
April 27–28, 2010 186 of 206Authorized for Public Release
2010 2011 2012 Longer Run
Central Tendency 3.2 to 3.7 3.4 to 4.5 3.5 to 4.5 2.5 to 2.8 January projections 2.8 to 3.5 3.4 to 4.5 3.5 to 4.5 2.5 to 2.8Range 2.7 to 4.0 3.0 to 4.6 2.8 to 5.0 2.4 to 3.0 January projections 2.3 to 4.0 2.7 to 4.7 3.0 to 5.0 2.4 to 3.0Memo: Greenbook 3.5 4.4 4.7 2.5 January Greenbook 3.6 4.7 4.5 2.5
2010 2011 2012 Longer Run
Central Tendency 9.1 to 9.5 8.1 to 8.5 6.6 to 7.5 5.0 to 5.3 January projections 9.5 to 9.7 8.2 to 8.5 6.6 to 7.5 5.0 to 5.2
Range 8.6 to 9.7 7.2 to 8.7 6.4 to 7.7 5.0 to 6.3 January projections 8.6 to 10.0 7.2 to 8.8 6.1 to 7.6 4.9 to 6.3
Memo: Greenbook 9.3 8.2 6.7 5.2 January Greenbook 9.5 8.2 6.1 5.2
2010 2011 2012 Longer Run
Central Tendency 1.2 to 1.5 1.1 to 1.9 1.2 to 2.0 1.7 to 2.0 January projections 1.4 to 1.7 1.1 to 2.0 1.3 to 2.0 1.7 to 2.0Range 1.1 to 2.0 0.9 to 2.4 0.7 to 2.2 1.5 to 2.0 January projections 1.2 to 2.0 1.0 to 2.4 0.8 to 2.0 1.5 to 2.0Memo: Greenbook 1.3 1.0 1.1 2.0 January Greenbook 1.4 1.1 1.3 2.0
2010 2011 2012
Central Tendency 0.9 to 1.2 1.0 to 1.5 1.2 to 1.6 January projections 1.1 to 1.7 1.0 to 1.9 1.2 to 1.9Range 0.7 to 1.6 0.6 to 2.4 0.6 to 2.2 January projections 1.0 to 2.0 0.9 to 2.4 0.8 to 2.0Memo: Greenbook 0.9 0.9 1.1 January Greenbook 1.2 1.1 1.2NOTE: See Table 1 for variable definitions
Exhibit 2: Economic Projections for 2010-2012 and Longer Run
Real GDP Growth
Unemployment Rate
PCE Inflation
Core PCE Inflation
April 27–28, 2010 187 of 206Authorized for Public Release
2
4
6
8
10
12
14
16
18
Number of participants
Exhibit 3. Risks and Uncertainty in Economic Projections
Uncertainty about GDP Growth
January projections
Lower Similar Higher
April projections
2
4
6
8
10
12
14
16
18
Number of participants
Uncertainty about PCE Inflation
Lower Similar Higher
2
4
6
8
10
12
14
16
18
Number of participants
Risks to GDP Growth
January projections
Downside Balanced Upside
April projections
2
4
6
8
10
12
14
16
18
Number of participants
Risks to PCE Inflation
Downside Balanced Upside
April 27–28, 2010 188 of 206Authorized for Public Release
Appendix 4: Materials used by Mr. Sheets
April 27–28, 2010 189 of 206Authorized for Public Release
6.06.4
6.7 6.8 6.8 7.17.6
12.5
6.0
8.0
10.0
12.0
14.0
Europe: Average Residual Maturity of Outstanding Government DebtYears
In 2007, 98.5 percent of Greek debt issuance had maturity
of at least 5 years.
0.0
2.0
4.0
Germany Portugal Spain Ireland France Italy Greece United Kingdom* Average residual maturity of marketable debt, as of April 15, 2010.
April 27–28, 2010 190 of 206Authorized for Public Release
Appendix 5: Materials used by Mr. Sack
April 27–28, 2010 191 of 206Authorized for Public Release
FEDERAL RESERVE SYSTEM
Date: April 28, 2010
To: Federal Open Market Committee
From: William English, Brian Madigan, and Brian Sack
Subject: Redemption of Treasury Securities Under Alternative Approaches
In yesterday’s discussion of the redemption strategy for the Federal Reserve’s holdings of Treasury securities, several FOMC members raised the possibility of running down our holdings of longer-term securities while continuing to reinvest in shorter-term issues. The table below summarizes the amount of redemptions achieved under several potential strategies along these lines. Cumulative Redemptions of Treasury Securities Under Alternative Approaches ($ Billions)
2010 2011 2012 2013
Full Redemption Strategy 60 130 268 330
Redeem Holdings of Longer-term Securities Original Maturity of 3 Years or More 16 58 192 254 Original Maturity of 5 Years or More 12 46 105 158 Original Maturity of 7 Years or More 3 8 18 34
Reinvest Maturing Holdings into Short-term Instruments Invest in Bills at Auction 39 99 216 264 Invest in Bills and 2-yr Notes at Auction 16 30 102 123 Invest in Bills, 2- and 3-yr Notes at Auction 0 0 0 0 Invest in Bills in Secondary Market 0 0 0 0
All figures are year-end amounts assuming redemptions begin May 3.
April 27–28, 2010 192 of 206Authorized for Public Release
Appendix 6: Materials used by Chairman Bernanke
April 27–28, 2010 193 of 206Authorized for Public Release
Class II FOMC – Restricted (FR)
Comparison of Taylor Rule Prescriptions
‐10.0
‐8.0
‐6.0
‐4.0
‐2.0
0.0
2.0
4.0
6.0
8.0
10.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Inflation Measure: CPI or GDP Deflator
Fed Funds RateTaylor (1993) GDP DeflatorTaylor (1999) GDP DeflatorTaylor (1993) CPITaylor (1999) CPI
Percent
‐10.0
‐8.0
‐6.0
‐4.0
‐2.0
0.0
2.0
4.0
6.0
8.0
10.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Inflation Measure: Core CPI or Core PCE
Fed Funds RateTaylor (1993) Core PCETaylor (1999) Core PCETaylor (1993) Core CPITaylor (1999) Core CPI
Percent
April 27–28, 2010 194 of 206Authorized for Public Release
Class II FOMC – Restricted (FR)
The Unemployment Gap and the Commencement of Tightening
Net Changes in Nonfarm Payrolls
Dates Millions Percent Nov. 1982 to June 1983 1.24 1.4 June 1992 to Feb. 1994 4.04 3.7 June 2003 to June 2004 1.60 1.2 Oct. 2009 to March 2010 0.12 0.1
The Recent Evolution of Consumer Prices and M2 (Annualized Changes through March 2010, in Percent)
CPI Core CPI
CPI ex. OER
Core CPI ex. OER
M2
3-Month 0.9 -0.2 1.5 0.1 -1.5 6-Month 1.7 0.6 2.4 1.1 1.3
12-Month 2.3 1.1 3.1 1.6 1.5
Nov‐824.3
Jun‐922.3
Jun‐031.4
Oct‐094.9
June‐83 February‐94 June‐04
‐2.0
‐1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
Real Time
Ex Post
3.7
0.0
1.20.7
Percent
April 27–28, 2010 195 of 206Authorized for Public Release
Appendix 7: Materials used by Mr. English
April 27–28, 2010 196 of 206Authorized for Public Release
Class I FOMC – Restricted-Controlled FR Material for
FOMC Briefing on Monetary Policy Alternatives Bill English April 27-28, 2010
April 27–28, 2010 197 of 206Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Page 1 of 9
March FOMC Statement
1. Information received since the Federal Open Market Committee met in January suggests
that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
2. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
3. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 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 of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
4. In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.
April 27–28, 2010 198 of 206Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Page 2 of 9
April FOMC Statement—Alternative A
1. Information received since the Federal Open Market Committee met in March suggests
that economic activity has continued to strengthen and that the labor market is showing signs of improving. Although growth in household spending has picked up recently, it is likely to remain constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth.
2. Although longer-term inflation expectations have remained stable, recent data suggest inflation has been trending down in response to substantial resource slack. The Committee anticipates that inflation is likely to be quite subdued for some time.
3. To promote a more robust economic recovery in a context of price stability, the
Committee anticipates maintaining the target range for the federal funds rate at 0 to ¼ percent for an extended period—until economic conditions such as appreciably higher rates of resource utilization, increasing inflation pressures, or rising inflation expectations warrant a less accommodative monetary policy. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
4. [To gradually reduce the size of the Federal Reserve’s balance sheet and return it
to a more normal composition over time, the Committee will maintain its approach of not reinvesting the proceeds of maturing agency debt and payments on mortgage-backed securities held by the System Open Market Account. The Committee is continuing to roll over maturing Treasury securities.]
5. In light of improved functioning of financial markets, the Federal Reserve has closed all
but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.
April 27–28, 2010 199 of 206Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Page 3 of 9
April FOMC Statement—Alternative B 1. Information received since the Federal Open Market Committee met in March suggests
that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
2. With substantial resource slack continuing to restrain cost pressures and longer-term
inflation expectations stable, inflation is likely to be subdued for some time. 3. 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 of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
4. [To gradually reduce the size of the Federal Reserve’s balance sheet and return it to a more normal composition over time, the Committee will maintain its approach of not reinvesting the proceeds of maturing agency debt and payments on mortgage-backed securities held by the System Open Market Account. The Committee is continuing to roll over maturing Treasury securities.
OR
To gradually reduce the size of the Federal Reserve’s balance sheet over time, the Committee will maintain its approach of not reinvesting the proceeds of maturing agency debt and payments on mortgage-backed securities held by the System Open Market Account. In addition, on May 3 the Committee will stop reinvesting the proceeds of maturing Treasury securities.]
5. In light of improved functioning of financial markets, the Federal Reserve has closed all
but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.
April 27–28, 2010 200 of 206Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Page 4 of 9
April FOMC Statement—Alternative C 1. Information received since the Federal Open Market Committee met in March
indicates that economic activity has continued to strengthen and that the labor market is improving. Though investment in nonresidential structures is declining, housing starts have edged up, growth in household spending has increased, and business spending on equipment and software has risen significantly. While bank lending continues to contract, financial market conditions have become more supportive of economic growth. With economic recovery under way, the Committee anticipates a gradual return to higher levels of resource utilization.
2. Although energy prices have risen on balance in recent months, inflation has remained subdued. The Committee will adjust the stance of monetary policy as necessary over time to ensure that longer-term inflation expectations remain well anchored and that inflation outcomes are consistent with price stability.
3. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and now anticipates that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for some time.
4. The Committee will maintain its approach of not reinvesting the proceeds of maturing agency debt and payments on mortgage-backed securities held by the System Open Market Account. In addition, on May 3 the Committee will stop reinvesting the proceeds of maturing Treasury securities. To further reduce the size of the Federal Reserve’s balance sheet, and to return the balance sheet to a more normal composition, the Committee anticipates that it will soon begin gradual sales of agency debt and mortgage-backed securities. The timing and pace of such sales will depend on evolving economic and financial conditions. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
5. In light of improved functioning of financial markets, the Federal Reserve has closed all
but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.
April 27–28, 2010 201 of 206Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Page 5 of 9
Table 1: Overview of Alternatives for the April 28 FOMC Statement
March Statement
April Alternatives
A B CEconomic Activity
Recent Developments
has continued to strengthen
has continued to strengthen
has continued to strengthen
has continued to strengthen
Labor Market
is stabilizing; high unemployment;
employers remain reluctant to add to
payrolls
is showing signs of improving;
high unemployment; employers remain reluctant to add to
payrolls
is beginning to improve; high unemployment;
employers remain reluctant to add to
payrolls
is improving
Outlook
recovery likely to be moderate for a time;
gradual return to higher levels of resource
utilization
---
recovery likely to be moderate for a time;
gradual return to higher levels of resource
utilization
recovery under way; gradual return to higher
levels of resource utilization
Inflation
Recent Developments
substantial slack is restraining cost
pressures; stable inflation expectations
stable inflation expectations but recent data suggest inflation is
trending down in response to slack
substantial slack is restraining cost pressures;
stable inflation expectations
energy prices have risen on balance in recent months but inflation
remains subdued
Outlook likely to be subdued
for some time likely to be quite subdued
for some time likely to be subdued
for some time
policy adjustments will ensure inflation outcomes consistent with price stability
Federal Funds Rate Target
Intermeeting Period
0 to ¼ percent 0 to ¼ percent 0 to ¼ percent 0 to ¼ percent
Forward Guidance
economic conditions are likely to warrant
exceptionally low levels for an extended period
anticipate maintaining the 0 to ¼ percent target range for an extended
period—until economic conditions such as . . .
warrant a less accommodative policy
economic conditions are likely to warrant
exceptionally low levels for an extended period
economic conditions are likely to warrant
exceptionally low levels for some time
Reinvestment and Sales of SOMA Assets
Approach
[do not reinvest proceeds of agency debt and MBS but continue to roll over
maturing Treasuries]
[do not reinvest proceeds of agency debt and MBS but continue to roll over
maturing Treasuries] OR
[no reinvestment]
no reinvestment; “Committee anticipates that it will soon begin gradual sales of agency
debt and MBS”
April 27–28, 2010 202 of 206Authorized for Public Release
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Page 6 of 9
MARCH 2010 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 complete the execution of its purchases of about $1.25 trillion of agency MBS
and of about $175 billion in housing-related agency debt by the end of March. 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.
April 27–28, 2010 203 of 206Authorized for Public Release
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Page 7 of 9
APRIL 2010 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 engage in dollar roll transactions as necessary to facilitate settlement of the
Federal Reserve’s agency MBS transactions. [To gradually reduce the size of the
Federal Reserve’s balance sheet and return it to a more normal composition
over time, the Committee directs the Desk to not reinvest the proceeds of
maturing agency debt and payments on mortgage-backed securities held by
the System Open Market Account.] 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 27–28, 2010 204 of 206Authorized for Public Release
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Page 8 of 9
APRIL 2010 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 engage in dollar roll transactions as necessary to facilitate settlement of the
Federal Reserve’s agency MBS transactions. [To gradually reduce the size of the
Federal Reserve’s balance sheet and return it to a more normal composition
over time, the Committee directs the Desk to not reinvest the proceeds of
maturing agency debt and payments on mortgage-backed securities held by
the System Open Market Account. OR To gradually reduce the size of the
Federal Reserve’s balance sheet over time, the Committee directs the Desk to
not reinvest the proceeds of maturing Treasury and agency debt and payments
on mortgage-backed securities held by the System Open Market Account.]
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 27–28, 2010 205 of 206Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Page 9 of 9
APRIL 2010 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 engage in dollar roll transactions as necessary to facilitate settlement of the
Federal Reserve’s agency MBS transactions. To gradually reduce the size of the
Federal Reserve’s balance sheet over time, the Committee directs the Desk to
not reinvest the proceeds of maturing Treasury and agency debt and payments
on mortgage-backed securities held by the System Open Market Account. 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 27–28, 2010 206 of 206Authorized for Public Release