December 17-18, 2013 Authorized for Public Release 185 of ......2013/12/18 · **2012 GDP-weighted average of 15 major emerging market economies. Source: Bloomberg, FRBNY Staff Calculations

Appendix 1: Materials used by Mr. Potter and Ms. Logan

December 17-18, 2013 Authorized for Public Release 185 of 245

Class II FOMC – Restricted (FR)

Material for Briefing on Financial Developments and Open Market Operations

Simon Potter and Lorie Logan December 17, 2013


Exhibit 1 Class II FOMC – Restricted (FR)

1.0

1.5

2.0

2.5

3.0

3.5

01/01/13 04/01/13 07/01/13 10/01/13

Percent

10-Year Nominal Treasury YieldDec '16 Eurodollar Futures-Implied Rate

JEC Sep FOMC

Oct FOMC

(1) Treasury and Eurodollar Futures Rates

Source: Bloomberg

0

20

40

60

80

100

Dec '13 Jan '14 Mar '14 > Q1 '14

Percent Oct '13 Survey AverageDec '13 Survey AverageDealers

*Probability assigned to timing of initial reduction in pace of asset purchases. Dots scaled by number of dealers. Source: Federal Reserve Bank of New York Survey

(3) Distribution of Market Beliefs on Timing ofInitial Reduction in Pace of Asset Purchases*

-20

-10

0

10

20

30

40

Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18

BPS

Contract Expiry

(2) Changes in Eurodollar Futures Rates Over Intermeeting Period

Source: Bloomberg

1.4

1.8

2.2

2.6

3.0

01/01/13 04/01/13 07/01/13 10/01/13

Percent

5-Year5-Year, 5-Years Forward

JECSep

FOMC Oct FOMC

(5) Inflation Compensation*

*Derived from Treasury Inflation-Protected Securities.Source: Federal Reserve Board of Governors

(6) Asset Price DevelopmentsOver Intermeeting Period

*FHLMC 30-year survey rateSource: Bloomberg, Barclays

Level on Change Since12/13/13 10/29/13

Changes in Basis PointsPrimary Mortgage Rate* 4.42% +2930-Year CC MBS OAS 32 bps +16IG Corp. Credit OAS 121 bps -10HY Corp. Credit OAS 396 bps -31

Changes in PercentS&P 500 Index 1775 +0.2DXY Dollar Index 80.21 +0.8

0

20

40

60

80

100

< 6.0% 6.0 - 6.5% > 6.5%

Percent

Unemployment Rate

Sep '13 Survey AverageOct '13 Survey AverageDec '13 Survey AverageDealers

*Probability assigned to unemployment rate at first rate hike. Conditioned oninflation thresholds not being breached. Dots scaled by number of dealers.Source: Federal Reserve Bank of New York Survey

(4) Distribution of Market Beliefs on Unemployment Rate Outcomes at First Rate Hike*


https://www.federalreserve.gov/monetarypolicy/files/FOMC20131218meeting.pdf

Exhibit 2 Class II FOMC – Restricted (FR)

1.0

1.5

2.0

2.5

1.5

2.0

2.5

3.0

01/01/13 04/01/13 07/01/13 10/01/13

Percent Percent

U.S. (LHS)U.K. (LHS)Germany (RHS)

FOMC

(7) Ten-Year Sovereign Yields

Source: Bloomberg

0.00.10.20.30.40.50.6

1.0

1.2

1.4

1.6

1.8

01/01/13 04/01/13 07/01/13 10/01/13

Percent Percent

3-Year Euro Area Inflation Swap Rate (LHS)1-Year Eonia, 1-Year Forward Swap Rate (RHS)

Euro Area Flash CPI

(9) Euro Area Inflation and Eonia Forward Swap Rates

Source: Barclays, Bloomberg

80

85

90

95

100

105

110

90

100

110

120

130

140

150

160

01/01/13 04/01/13 07/01/13 10/01/13

¥/$ Indexed to 01/01/13

TOPIX Index(LHS)Dollar-Yen (RHS)

FOMC

(10) TOPIX and Dollar-Yen

Source: Bloomberg

-20-10

010203040

Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18

BPS

Contract Expiry

U.S.U.K.Euro Area

(8) Changes in Futures Rates Over Intermeeting Period*

*Changes in Eurodollar, Short Sterling and Euribor futures-implied rates for the U.S., U.K., and Euro Area, respectively. Source: Bloomberg

80

85

90

95

100

105

110

01/01/13 04/01/13 07/01/13 10/01/13

Indexed to 01/01/13

Australian DollarCanadian DollarNew Zealand DollarNorwegian Krone

Depreciation Against Dollar

FOMC JEC

(12) Currency Performance Against the Dollar

Source: Bloomberg

-12

-9

-6

-3

0

3-50

0

50

100

150

200

01/01/13 04/01/13 07/01/13 10/01/13

Percent BPS

10-Year Treasury Yield (LHS)5-Year EM Yields** (LHS)EM Currencies** (RHS)

JEC FOMC

Depreciation Against Dollar

(11) Cumulative Changes in U.S. and Emerging Market Assets*

*Since 01/01/13. **2012 GDP-weighted average of 15 major emerging market economies. Source: Bloomberg, FRBNY Staff Calculations



0

20

40

60

80

100

120

0

10

20

30

40

50

60

09/23/13 10/09/13 10/28/13 11/14/13 12/03/13

Number $ Billions

Total Allotment (LHS)Quarter- or Month-End OperationNumber of Counterparties (RHS)

(15) Overnight RRP Operation Results

Source: Federal Reserve Bank of New York

Exhibit 3 (Last) Class II FOMC – Restricted (FR)

0

20

40

60

80

0

50

100

150

200

1 6 11 16 21 26 31 36 41 46 51

$ Billions $ Billions

Week of the Year

Treasury** (LHS)MBS*** (RHS)

(13) Weekly Treasury and MBS Trading Volumes*

*2010-YTD 2013 averages. **On-the-run 10-year note. ***15- and 30-year securities, all agencies and traded coupons. Source: Brokertec, Tradeweb, FRBNY Staff Calculations

0

10

20

30

40

50

60

-5 0 5 10 15 20

Non

-Tes

t Par

ticip

atio

n ($

Bill

ions

)

Dealer Survey Treasury GC Rate less Fixed Rate (BPS)


11/29/13

10/31/13

(14) Overnight RRP Participation vs. Rate Spread

09/30/13

(18) Overnight RRP Exercise Recommendations


• Expand counterparty limits to $3 billion; leave other terms of resolution unchanged.

• Announce on Dec 19th; implement on Dec 20th.

• Lower fixed-rate to 3 bps ahead of year-end.

• Discuss possible extension and other revisions at January meeting.

0

20

40

60

80

100

09/23/13 10/09/13 10/28/13 11/14/13 12/03/13

Percent Dealers DIs GSEsPrime MMFs Gov't MMFs

(16) Overnight RRP Allotment by Counterparty Type


0

50

100

150

2006 2008 2010 2012

$ Billions

Inception of ON RRP Exercise

(17) Brokered Federal Funds Volumes*

*10-day moving average of daily volumes. Source: Federal Reserve Bank of New York



Appendix 2: Materials used by Ms. Logan



Overnight Reverse Repurchase Agreement Resolution December 17, 2013


Proposed Resolution on Overnight Reverse Repurchase Agreements

“The Federal Open Market Committee authorizes an increase in the maximum

allotment cap for the series of fixed-rate, overnight reverse repurchase operations

approved on September 17, 2013, to $3 billion per counterparty per day from its

previous level of $1 billion per counterparty per day. All other aspects of the

resolution remain unchanged.”

Memo: Resolution approved September 17, 2013

“The Federal Open Market Committee (FOMC) authorizes the Federal Reserve Bank

of New York to conduct a series of fixed-rate, overnight reverse repurchase

operations involving U.S. Government securities, and securities that are direct

obligations of, or fully guaranteed as to principal and interest by, any agency of the

United States, for the purpose of assessing operational readiness. The reverse

repurchase operations authorized by this resolution shall be (i) offered at a fixed rate

that may vary from zero to five basis points, (ii) offered at up to a capped allotment

per counterparty of $1 billion per day and (iii) for an overnight term, or such longer

term as is warranted to accommodate weekend, holiday, and similar trading

conventions. The System Open Market Account Manager will inform the FOMC in

advance of the terms of the planned operations. These operations may be announced

when authorized by the Chairman, may begin when authorized by the Chairman on or

after September 23, 2013, and shall be authorized through the FOMC meeting that

ends on January 29, 2014.”


Page 1 of 1


Appendix 3: Materials used by Ms. Tevlin, Mr. Reeve, and Ms. Liang


Class II FOMC – Restricted (FR) Material for

Staff Presentation on the Economic and Financial Situation

Stacey Tevlin, Trevor A. Reeve, and Nellie Liang December 17, 2013


Class II FOMC - Restricted (FR) Exhibit 1

Near-term Developments

0

1

2

3

4

5

6

0

1

2

3

4

5

6Percent change, annual rate

Consumer Spending

Q3 Q4 * Percent change, PCE-relevant portion of sales ** Millions of units, annual rate

f f

Sep. Oct. NovRetail Sales* 0.4 0.8 0.6MV Sales** 15.2 15.1 16.3

Oct. TBCurrent

40

50

60

70

80

90

100

40

50

60

70

80

90

100Index, 1966 = 100

Consumer Sentiment: Michigan Survey

2007 2008 2009 2010 2011 2012 2013

Dec.

Avg. value since 1978

-8

-6

-4

-2

0

2

4

6

-8

-6

-4

-2

0

2

4

6 IndexPercent change*

Indicators of Business Investment

2007 2008 2009 2010 2011 2012 2013 *Analysts’ one-year ahead expectations of earnings of capital goodsproducers, 3-month moving average.

ISM index, manufacturingEarnings expectations

350

450

550

650

750

350

450

550

650

750 Thousands of units, annual rate

2011 2012 2013

Single-family Housing Starts and Permits

Aug.

Oct.

Adjusted permitsStarts

0

5

10

15

20

0

5

10

15

20Millions of loans

2005 2007 2009 2011 2013

Mortgages with Negative Equity

Note: Negative equity number likely is understated because ofincomplete data on junior liens. Source: Federal Reserve staff calculations, based on data fromCoreLogic and LPS Applied Analytics.

PrimeFHA/VANonprime

Near-term Outlook for Real GDP(Percent change from end of earlier period, annual rate)

2013

H1 Q3 Q4 H2

1. Real GDP 1.8 3.4 2.2 2.8 2. (Oct. TB) (1.8) (2.2) (2.1) (2.2) 3. (Jun. TB) (2.0) (2.5) (3.3) (2.9)

4. PDFP 2.1 2.0 3.9 3.0 5. (Oct. TB) (2.1) (2.1) (3.0) (2.6) 6. (Jun. TB) (2.9) (3.7) (4.2) (4.0)

H1




Medium-term Forecast

0

2

4

6

8

0

2

4

6


Real GDP

2012 2013 2014 2015 2016

70% confidenceinterval

CurrentJun. TB

0

1 Revisions Since June

Reasons for Downward

0

2

4

6

8

0

2

4

6

8Percent

2012 2013 2014 2015 2016

Interest Rates

Note. Dashed lines are from June 2013 TB.

BBB corporate

10-year Treasury

90

95

100

105

110

90

95

100

105

110 2012:Q1=100

2012 2013 2014 2015 2016

Real Exchange Value of the Dollar

Note. Dashed line is from June 2013 TB.

0

1

2

3

4

5

0

1

2

3

4

5Percent change, Q4/Q4

2013 2014 2015

PCE

Jun. TBCurrent

0

2

4

6

8

0

2

4

6

8Percent change, Q4/Q4

2013 2014 2015

Equipment & Software

Jun. TBCurrent

Slightly higher interest rates

Higher dollar

Incoming data on PCE



Consumer Price Index(Percent change, monthly rate)

Sep. Oct. Nov.

1. Total .2 -.1 .0 2. Food .0 .1 .1 3. Energy .8 -1.7 -1.0 4. Core .1 .1 .2

Memo:Core PCE .1 .1 .1e

e Staff estimate. 0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0Percent change, annual rate

Q2 Q3 Q4

Core PCE Inflation

Oct. TBDec. TB

-1

0

1

2

3

4

-1

0

1

2

3

4Twelve-month percent change

Measures of Core Inflation

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Oct.Core PCETrimmed-mean PCEChained Core CPITrimmed-mean CPI

-4

-3

-2

-1

0

1

2

3

4

-4

-3

-2

-1

0

1

2

3


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Core Nonfuel Import Prices

2013 2014

PCE Price Projection(Percent change from end of earlier period, annual rate)

2013H1 H2 2013 2014 2015 2016

1. Total 0.5 1.3 0.9 1.4 1.4 1.6 2. (Jun. TB) 0.4 1.3 0.9 1.4 1.6

3. Core 1.0 1.3 1.1 1.4 1.6 1.7 4. (Jun. TB) 1.0 1.4 1.2 1.6 1.8


Inflation




Labor Market

-1000

-800

-600

-400

-200

0

200

400

-1000

-800

-600

-400

-200

0

200

400Thousands of employees

Change in Total Payroll Employment

2008 2009 2010 2011 2012 2013 Note. 3-month moving average.

Nov.

Unemployment rate Aug. Sep. Oct. Nov. 7.3 7.2 7.3 7.0

30

31

32

33

34

35Percent*

1

2

3

4

5

6Percent*

1994 1999 2004 2009 2014

Nonparticipants by Employment Preference

* Percent of noninstitutional civilian population, age 16 and over

Nov.

Nov.

Participation rate Aug. Sep. Oct. Nov. 63.2 63.2 62.8 63.0

Nonparticipation rate, want jobNonparticipation rate, don’t want job

3

6

9

12

15

18

21

24

27

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50 Percent*Percent**

2008 2009 2010 2011 2012 2013

Other Indicators Showing Improvement

* Percent of private employment, 3-month moving average. ** Percent of surveyed businesses with at least one ’hard-to-fill’ jobopening.

Nov.

Oct.

Job openings rateNFIB Jobs Hard-to-Fill

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7 Percent of Labor Force

Indicators Showing Less Improvement

2008 2009 2010 2011 2012 2013

Part-time for economic reasonsLong-term unemployed

4.5

5.5

6.5

7.5

8.5

9.5

10.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5Percent

Unemployment Rate

2010 2012 2014 2016 *Staff estimate; includes adjustment for emergency and extendedunemployment benefits programs

Natural rate*

Unemployment rateJun. TB

Natural rate, Jun. TB*

0

1 Revisions Since June 2013 TealbookRevisions Since June 2013 Tealbook

Unemployment rate revised down .2 pp in 2013Q4.

Private payroll employment is coming in close to expectations.

Participation rate is coming in .4 pp lower

than expected.

Our medium-run projection is not materially changed.




Foreign Outlook

0

1

2

3

4

5

2010 2011 2012 2013 2014 2015 2016

Foreign Real GDPPercent change*

EMEAFE

Contribution of:

*Annual changes are Q4/Q4; quarterly changes are at an annual rate.

42

44

46

48

50

52

54

56

58

60

2010 2011 2012 2013

Manufacturing PMIsDiffusion index

United Kingdom

Euro area

Japan

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2010 2012 2014 2016

JapanPercent of GDP

*Change in the structural budget balancetimes the fiscal multiplier.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2010 2012 2014 2016

Euro AreaFiscal Impulse*

Percent of GDP

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2010 2012 2014 2016

United KingdomPercent of GDP

Real GDP* Percent change, annual rate

2012 2013 2014f 2015f 2016f

H1 Q3 Q4f

1. Total foreign 2.2 2.1 3.0 3.1 3.2 3.4 3.42. June Tealbook 2.2 2.1 2.7 3.2 3.3 3.5 n.a.

3. Advanced foreign economies 0.2 1.7 1.8 2.0 2.0 2.2 2.34. Canada 1.0 2.0 2.7 2.2 2.5 2.7 2.75. Japan -0.3 4.0 1.1 3.6 1.2 1.0 1.36. Euro area -1.0 0.2 0.3 0.8 1.2 1.9 2.07. United Kingdom -0.2 2.1 3.2 3.0 2.8 2.6 2.4

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




Euro Area

0

25

50

75

100

125

150

175

200

2006 2008 2010 2012 2014 2016

Government DebtPercent of GDP

Greece

Ireland

Portugal

Spain

Italy

-60

-40

-20

0

20

40

60

2010 2011 2012 2013

Net Bank LendingBillions of euros

HouseholdsNon-financial corporations (NFCs)

0

5

10

15

20

25

30

2006 2008 2010 2012 2014 2016

Unemployment RatesPercent

Euro area

Germany

Spain

Italy

GIP*

*Greece, Ireland, and Portugal.

European Banking Union

Single rulebook for regulation approved.

Single supervisory mechanism (SSM)approved.

ECB to begin direct supervision in late2014.

Asset quality review and stress tests.

Slower progress on single resolutionmechanism (SRM).

No progress on single deposit insurancescheme.

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2010 2011 2012 2013

Interest Rates on Loans to NFCsPercent

Germany

France

SpainItaly




-2

-1

0

1

2

3

4

5

2010 2011 2012 2013 2014 2015 2016

AFE Consumer Prices4-quarter percent change

AFE Inflation and Monetary Policy

Euro area

Japan*

United Kingdom

Canada

*Excluding effects of consumption tax hikes in 2014 and 2015.

6.5

7.0

7.5

8.0

8.5

2010 2011 2012 2013 2014 2015 2016

BoE Modal Forecast for Unemployment RatePercent

August

November

Threshold

0.0

0.5

1.0

1.5

2.0

2014 2015 2016

Market-implied Policy Rates*Percent

Euro area

Canada

United Kingdom

Japan

*One-month forward rates from OIS quotes.

75

80

85

90

95

100

105

110

Jan Mar May Jul Sep Nov

Dollar Exchange RatesJan. 1, 2013 = 100

Local currencydepreciation

Mexico

Indonesia

Brazil

Korea

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015 2016

BoJ Balance SheetPercent of GDP

OctoberTB

-15

-12

-9

-6

-3

0

3

6

9

12

Jan Mar May Jul Sep Nov100

150

200

250

300

350

400

Flows to EME Dedicated Funds*Billions of dollarsBasis points

Bond fundsEquity funds

Emerging Market Economies

CDS premiums**

*Emerging Portfolio Fund Research.**CDX Emerging Market Sovereigns.




Emerging Market Economies

0

1

2

3

4

5

6

7

8

9

2010 2011 2012 2013

EME Consumer Prices12-month percent change

Brazil

Indonesia

KoreaMexico

-50

-40

-30

-20

-10

0

10

20

30

1970 1980 1990 2000 2010

EME Net Foreign Asset Position*Percent of GDP

Foreign reservesDebtFDIEquity

*Emerging Asia and Latin America, excluding China, Hong Kong,and Singapore.

0

2

4

6

8

10

12

14

2010 2011 2012 2013

EME Monetary Policy RatesPercent

Brazil

Indonesia

Korea

Mexico

95

105

115

125

135

145

155

2010 2011 2012 2013

EME ExportsJan. 2010 = 100*

Oct.

*3-month moving average.

Real GDP* Percent change, annual rate

2012 2013 2014f 2015f 2016f

H1 Q3 Q4f

1. Emerging market economies 4.2 2.6 4.1 4.3 4.4 4.6 4.6

2. China 7.8 7.0 9.4 8.5 7.8 7.6 7.53. Other emerging Asia 4.0 2.9 4.1 4.1 4.2 4.6 4.64. Mexico 3.2 -0.7 3.4 3.5 3.6 3.6 3.55. Other Latin America 3.1 3.8 0.4 2.1 3.1 3.3 3.5

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




China

Financial reforms to liberalize interest rates, exchange rates, and capital account.

Fiscal reforms to better align revenues and expenditures of central and local governments.

Labor reforms to ease internal migration restrictions.

Land reforms to strengthen property rights.

China’s Third Plenum

200

300

400

500

600

700

800

2001 2003 2005 2007 2009 2011 2013

Merchandise ExportsBillions of dollars, ratio scale

To AFEs

To EMEs

100

120

140

160

180

200

2001 2003 2005 2007 2009 2011 201335

40

45

50

China: Investment and Credit*Percent of GDPPercent of GDP

Total credit

Investment

*2013 projected using year-to-date data.

-2

0

2

4

6

8

10

12

2011 2012 2013 2014 2015 2016

Real Trade4-quarter percent change

Imports

Exports

90

95

100

105

2011 2012 2013 2014 2015 2016

Broad Real DollarU.S. External Sector

2011:Q1 = 100

October TB

-1.2

-0.8

-0.4

-0.0

0.4

0.8

1.2

2011 2012 2013 2014 2015 2016

Contribution to GDP GrowthPercentage points, Q4/Q4

Net Goods & ServicesExports of G & SImports of G & S



Exhibit 10Class II FOMC - Restricted (FR)Financial Stability Developments

4

6

8

10

12

Percent

Tier 1 CommonLeverage Ratio

2013201120092007200520032001

Regulatory Capital Ratios, CCAR 30 BHCs

Quarterly, SA

Q3

Source: FR Y-9C.

8

12

16

20

24Percent of GDP

2013201120092007200520032001

Net Short-term Wholesale Debt of FinancialSector-to-GDP Ratio

Quarterly

Q3

Source: FAOTUS and staff calculations.

-2

0

2

4

6

8

10

12Percent

2013200920052001199719931989

10-Year Treasuries

Monthly

10-year Treasury rate

Estimated term premium

Dec. 16

Note: Term premium is estimated by a three-factor model combiningTreasury yields with SPF interest rate forecasts.

-3

-2

-1

0

1

2

3Percent of assets

2007 2008 2009 2010 2011 2012 2013

Short-term Intermediate and long-term

Net Flows to Bond Mutual Funds

Monthly

Oct.

Note: Includes world, corporate, government, and tax-exempt. Source: Investment Company Institute monthly surveys.

• Dealer responses to SCOOS:

Use of short-term funding by levered investorsto finance longer-duration assets belowfirst-quarter levels

Further decline in financial leverage use byagency REITs

• Large cumulative inflows to long-term bond fundssince 2009 suggest investors are exposed tointerest rate and liquidity risk

Duration and Liquidity Risk

0

1

2

3

4

5

6

7

8

0

2

4

6

8

10

12

14

16Percent Percent

BBB (left axis)High Yield (right axis)

2013200920052001199719931989

10-year Corporate Bond Spreads to SimilarMaturity Treasury

Monthly

Dec.16

Note: Estimated from curve fit to Merrill Lynch bond yields. Treasuryyields from smoothed yield curve estimated from off-the-run securities.



Exhibit 11Class II FOMC - Restricted (FR)Financial Stability Developments

7

9

11

13

151719

23

273135

Ratio

20132009200520011997199319891985

Forward Price-Earnings Ratio

Monthly

Small Cap 2000S&P 500

Dec.

Note: Based on expected earnings for twelve months ahead. Median firmfor small cap. Source: Thomson Financial.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Percent of NYSE market cap

Regulation T equity margin creditGross portfolio margining debits

20132009200520011997199319891985

Equity Margin Credit and Portfolio MarginingDebits

Q3

Oct.

Source: Federal Reserve Board and FINRA.

-4

0

4

8

12

16

20

24Four-quarter percent change

Nonfinancial corporate businessHousehold

2013200820031998199319881983

Private Nonfinancial Sector Credit

Quarterly

Q3

Source: FAOTUS, NIPA, and staff calculations.

0

20

40

60

80

100

120Billions of dollars

2007 2008 2009 2010 2011 2012 2013

Leveraged loan issuance Speculative-grade bond issuance

Gross Speculative-grade Bonds and LeveragedLoans

Monthly rate

H1

Q3

Oct.andNov.

Source: Thomson Financial and Thomson Reuters LPC LoanConnector.

0

20

40

60

80

100

Percent

2004 2006 2008 2010 2012 2013

Debt multiples >=6x Debt multiples 4x-5.99x Debt multiples <=4x Q1Q2Q3

Distribution of Large Corporate Loans byDebt/EBITDA Ratio

Note: Loans to issuers with EBITDA of more than $50 million. Distributionis based on dollar volume. Source: S&P Capital IQ LCD.

0

200

400

600

800

1000Basis Points

Puerto RicoIllinoisMCDX

201320122011

Municipal 5-Year CDS Spreads

Weekly

Dec. 16

Note: The MCDX is a municipal credit default swap index. Source: Markit.



Exhibit 12 (Last)Class II FOMC - Restricted (FR)Financial Stability Developments

• Overall vulnerabilities appear moderate, but signs of building vulnerabilities in some sectors.

• There are a number of possible adverse shocks, for example, from Europe and some EME.

• Ongoing initiatives related to specific vulnerabilities:

Supervisory exams for compliance with leveraged lending guidance and monitoring for shiftto shadow banking.

CCAR 2014 for the 30 largest BHCs, and additional work on interest rate risk, including howdeposit holders may react to a rise in interest rates.

Evaluating the risk of ETFs and other funds that offer liquidity on demand when theunderlying securities are relatively illiquid.

Structural vulnerabilities in short-term funding markets.

Summary and Initiatives


Appendix 4: Materials used by Ms. DeBoer


Class I FOMC – Restricted Controlled (FR) Material for Briefing on the

Summary of Economic Projections

Marnie Gillis DeBoer December 17, 2013


Exhibit 1. Central tendencies and ranges of economic projections, 2013–16 and over the longer run

Change in real GDP

Percent

3

2

1

0

1

2

3

4

5

-

+

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

Central tendency of projections

Range of projections

Actual

Unemployment rate

Percent

5

6

7

8

9

10

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

PCE inflation

Percent

1

2

3

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

Core PCE inflation

Percent

1

2

3

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

Note: The data for the actual values of the variables are annual.


Page 1 of 4


Exhibit 2. Economic projections for 2013–16 and over the longer run (percent)

Change in real GDP

2013 2014 2015 2016 Longer run

Central Tendency . . . . . . . . . . . . . . . . . . . 2.2 to 2.3 2.8 to 3.2 3.0 to 3.4 2.5 to 3.2 2.2 to 2.4

September projection . . . . . . . . . . . 2.0 to 2.3 2.9 to 3.1 3.0 to 3.5 2.5 to 3.3 2.2 to 2.5

Range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 to 2.4 2.2 to 3.3 2.2 to 3.6 2.1 to 3.5 1.8 to 2.5


Memo: December Tealbook . . . . . . . . . 2.3† 3.1 3.5 3.4 2.3

September Tealbook. . . . . . . . . 2.3 3.1 3.4 3.2 2.3

†. Current staff estimate, updated from December Tealbook figure of 2.2.

Unemployment rate

2013 2014 2015 2016 Longer run

Central Tendency . . . . . . . . . . . . . . . . . . . 7.0 to 7.1 6.3 to 6.6 5.8 to 6.1 5.3 to 5.8 5.2 to 5.8


Range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0 to 7.1 6.2 to 6.7 5.5 to 6.2 5.0 to 6.0 5.2 to 6.0


Memo: December Tealbook . . . . . . . . . 7.1 6.5 5.9 5.3 5.2


PCE inflation

2013 2014 2015 2016 Longer run

Central Tendency . . . . . . . . . . . . . . . . . . . 0.9 to 1.0 1.4 to 1.6 1.5 to 2.0 1.7 to 2.0 2.0

September projection . . . . . . . . . . . 1.1 to 1.2 1.3 to 1.8 1.6 to 2.0 1.7 to 2.0 2.0

Range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 to 1.2 1.3 to 1.8 1.4 to 2.3 1.6 to 2.2 2.0

September projection . . . . . . . . . . . 1.0 to 1.3 1.2 to 2.0 1.4 to 2.3 1.5 to 2.3 2.0

Memo: December Tealbook . . . . . . . . . 0.9 1.4 1.4 1.6 2.0


Core PCE inflation

2013 2014 2015 2016

Central Tendency . . . . . . . . . . . . . . . . . . . 1.1 to 1.2 1.4 to 1.6 1.6 to 2.0 1.8 to 2.0

September projection . . . . . . . . . . . 1.2 to 1.3 1.5 to 1.7 1.7 to 2.0 1.9 to 2.0

Range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 to 1.2 1.3 to 1.8 1.5 to 2.3 1.6 to 2.2

September projection . . . . . . . . . . . 1.2 to 1.4 1.4 to 2.0 1.6 to 2.3 1.7 to 2.3

Memo: December Tealbook . . . . . . . . . 1.1 1.4 1.6 1.7

September Tealbook. . . . . . . . . 1.2 1.5 1.6 1.7


Page 2 of 4

Exhibit 3. Overview of FOMC participants’ assessments of appropriate monetary policy

2

12

3

Appropriate timing of policy firming

Number of participants

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

2014 2015 2016

December projections

September projections

Appropriate pace of policy firming Percent

Target federal funds rate at yearend

0

1

2

3

4

5

6

2013 2014 2015 2016 Longer run


Appropriate pace of policy firming Percent

Target federal funds rate at yearend

0

1

2

3

4

5

6

2013 2014 2015 2016 Longer run


* The changes in real GDP and inflation are measured Q4/Q4.Note: In the upper panel, the height of each bar denotes the number of FOMC participants who judge that, under

appropriate monetary policy, the first increase in the target federal funds rate from its current range of 0 to 1/4 percentwill occur in the specified calendar year. In the middle and lower panels, each circle indicates the value (rounded to thenearest 1/4 percentage point) of an individual participant’s judgment of the appropriate level of the target federal fundsrate at the end of the specified calendar year or over the longer run.


Page 3 of 4


Exhibit 4. Uncertainty and risks in economic projections

Uncertainty about GDP growth


2

4

6

8

10

12

14

16

18

20

Lower Broadly Highersimilar



Uncertainty about the unemployment rate


2

4

6

8

10

12

14

16

18

20


Uncertainty about PCE inflation


2

4

6

8

10

12

14

16

18

20


Uncertainty about core PCE inflation


2

4

6

8

10

12

14

16

18

20


Risks to GDP growth


2

4

6

8

10

12

14

16

18

20

Weighted to Broadly Weighted todownside balanced upside



Risks to the unemployment rate


2

4

6

8

10

12

14

16

18

20


Risks to PCE inflation


2

4

6

8

10

12

14

16

18

20


Risks to core PCE inflation


2

4

6

8

10

12

14

16

18

20



Page 4 of 4


Appendix 5: Materials used by Ms. Weinbach


Class I FOMC – Restricted Controlled (FR)

Material for Briefing on the

Survey on the Costs and Efficacy of Asset Purchases

Gretchen Weinbach December 17, 2013


Exhibit 1. Assessments of the magnitude of the costs

13

3

1

A: Market functioning


2

4

6

8

10

12

14

(1) (2) (3) (4) (5)

Very low Low Moderate High Prohibitive

3

8

4

2

B: Increased inflation


2

4

6

8

10

12

14

(1) (2) (3) (4) (5)


5

12

C: Capital losses


2

4

6

8

10

12

14

(1) (2) (3) (4) (5)


5

11

1

D: Financial instability


2

4

6

8

10

12

14

(1) (2) (3) (4) (5)


11

3 3

E: Managing exit


2

4

6

8

10

12

14

(1) (2) (3) (4) (5)


11

5

1

F: Unanticipated/unknowns


2

4

6

8

10

12

14

(1) (2) (3) (4) (5)


December 17-18, 2013 Authorized for Public Release 215 of 245Class I FOMC -- Restricted Controlled (FR)

Page 1 of 2


Exhibit 2

Summary of Survey Results Regarding Costs

Row Numerical Results & Qualitative Questions

Marginal cost related to:

A: Market

functioning

B: Increased inflation

C: Capital losses

D: Financial instability

E: Managing

exit

F: Unanticipated/

unknowns

1 Mean numerical response 2.3 2.3 2.7 2.8 2.5 2.4

Qualitative Results (most frequent responses)

2 How rapidly does it increase? mixed views on pace

mixed views on pace gradually mixed views

on pace mixed views

on pace mixed views

on pace

3 Memo: Increases with… share of

outstandings purchased

balance sheet

balance sheet

balance sheet, or w/ balance sheet & low rate period

balance sheet, or already big risk

balance sheet

4 Time frame it manifests itself? when share high range of views most said

several years wide range of

views

when Federal Reserve

changes policy range of views

5 How ameliorate? ½ said slow purchases; ½ said stop

most said stop most had ideasC

most had ideasD

½ had ideas;E ½ said stop

some had ideas;F some

said stop

6 Primarily associated with purchases or policy generally? purchases ½ purchases;

½ policy purchases around ½ policy; some purchases; some low rates

purchases policy

7 Social or institutional costs? most said no distinction

most said no distinction institutional most said

no distinction most said

no distinction no distinction

8

Memo: Count of numerical responses of…

“moderate” (3) and above 4 6 12 12 6 6

“high” (4) and “very low” (1) 1 “high” 2 “high;”

all 3 “very low” 0 “high” 1 “high” 3 “high” 1 “high”

C, D, E, F — Regarding ideas: C: educate public, Congress about benefits of Fed policies; don’t sell MBS; reserve against potential losses. D: monitor for risky behavior; take sup & reg steps, as needed; continue to put in place measures to strengthen financial system; enhance communication about stance of policy (when taper, consider strengthening forward guidance); begin to slow purchases when economic outlook is comparatively strong. E: more communication about exit strategy; develop and test exit tools. F: vigilant monitoring.

December 17-18, 2013 Authorized for Public Release 216 of 245Class I FOMC -- Restricted Controlled (FR)

Page 2 of 2

Appendix 6: Materials used by Mr. English


Class I FOMC – Restricted Controlled (FR) Material for

FOMC Briefing on Monetary Policy Alternatives

Bill English December 17-18, 2013


Policy Issues and Market Expectations

Source: December 9, 2013 Primary Dealer Survey.

2012 2014 2016 2018 2020 2022 20241500

2000

2500

3000

3500

4000

4500

5000$ Billion

Dec. Median PDAlternative BAlternative CAlternative A

Total Projected SOMA Security Holdings Distribution of Dealer Modal Timing of First Rate Increase

2013 2014 2015 2016Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

DecemberOctober

0

10

20

30

40

50

Percent ofRespondents

• Market views about likely timing of first pacereduction have shifted in somewhat.

• March remains the most likely timing.

• But odds on December, January, andMarch are nearly equal.

Timing of First Pace Reduction

0

10

20

30

40

50

60

70Percent Probability

Post-ThresholdGuidance

Post-Liftoff

Guidance

LowerUnemployment

RateThreshold

InflationFloor

Avg. Dealer Odds on Changes to Forward Guidance

Dec. Jan. Mar. Apr. Jun. Jul. Sep. Oct. Dec.

0

10

20

30

40

50Billions of dollars

MBSTreasury

Median Dealer Expectation for Purchase Pace After Each FOMC Meeting

2014

Avg. Dealer Probability: Unemployment Rate at First Rate Increase

<6.0% 6.0-6.5% >6.50%

DecemberOctober

0

10

20

30

40

50

60

70

80

Percent Probability

Class I FOMC – Restricted Controlled (FR) December 17-18, 2013 Authorized for Public Release 219 of 245

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OCTOBER FOMC STATEMENT

1. Information received since the Federal Open Market Committee met in Septembergenerally suggests that economic activity has continued to expand at a moderate pace.Indicators of labor market conditions have shown some further improvement, but theunemployment rate remains elevated. Available data suggest that householdspending and business fixed investment advanced, while the recovery in the housingsector slowed somewhat in recent months. Fiscal policy is restraining economicgrowth. Apart from fluctuations due to changes in energy prices, inflation has beenrunning below the Committee’s longer-run objective, but longer-term inflationexpectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximumemployment and price stability. The Committee expects that, with appropriate policyaccommodation, economic growth will pick up from its recent pace and theunemployment rate will gradually decline toward levels the Committee judgesconsistent with its dual mandate. The Committee sees the downside risks to theoutlook for the economy and the labor market as having diminished, on net, since lastfall. The Committee recognizes that inflation persistently below its 2 percentobjective could pose risks to economic performance, but it anticipates that inflationwill move back toward its objective over the medium term.

3. Taking into account the extent of federal fiscal retrenchment over the past year, theCommittee sees the improvement in economic activity and labor market conditionssince it began its asset purchase program as consistent with growing underlyingstrength in the broader economy. However, the Committee decided to await moreevidence that progress will be sustained before adjusting the pace of its purchases.Accordingly, the Committee decided to continue purchasing additional agencymortgage-backed securities at a pace of $40 billion per month and longer-termTreasury securities at a pace of $45 billion per month. The Committee is maintainingits existing policy of reinvesting principal payments from its holdings of agency debtand agency mortgage-backed securities in agency mortgage-backed securities and ofrolling over maturing Treasury securities at auction. Taken together, these actionsshould maintain downward pressure on longer-term interest rates, support mortgagemarkets, and help to make broader financial conditions more accommodative, whichin turn should promote a stronger economic recovery and help to ensure that inflation,over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financialdevelopments in coming months and will continue its purchases of Treasury andagency mortgage-backed securities, and employ its other policy tools as appropriate,until the outlook for the labor market has improved substantially in a context of pricestability. In judging when to moderate the pace of asset purchases, the Committeewill, at its coming meetings, assess whether incoming information continues tosupport the Committee’s expectation of ongoing improvement in labor marketconditions and inflation moving back toward its longer-run objective. Assetpurchases are not on a preset course, and the Committee’s decisions about their pacewill remain contingent on the Committee’s economic outlook as well as itsassessment of the likely efficacy and costs of such purchases.


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5. To support continued progress toward maximum employment and price stability, theCommittee today reaffirmed its view that a highly accommodative stance of monetarypolicy will remain appropriate for a considerable time after the asset purchaseprogram ends and the economic recovery strengthens. In particular, the Committeedecided to keep the target range for the federal funds rate at 0 to ¼ percent andcurrently anticipates that this exceptionally low range for the federal funds rate willbe appropriate at least as long as the unemployment rate remains above 6½ percent,inflation between one and two years ahead is projected to be no more than a halfpercentage point above the Committee’s 2 percent longer-run goal, and longer-terminflation expectations continue to be well anchored. In determining how long tomaintain a highly accommodative stance of monetary policy, the Committee will alsoconsider other information, including additional measures of labor market conditions,indicators of inflation pressures and inflation expectations, and readings on financialdevelopments. When the Committee decides to begin to remove policyaccommodation, it will take a balanced approach consistent with its longer-run goalsof maximum employment and inflation of 2 percent.


3 of 14

FOMC STATEMENT—DECEMBER 2013 ALTERNATIVE A

1. Information received since the Federal Open Market Committee met in SeptemberOctober generally suggests that economic activity has continued to expand isexpanding at a moderate pace. Indicators of labor market conditions have shownsome further improvement, but the unemployment rate remains elevated. Availabledata suggest that Household spending and business fixed investment advanced, whilebut the recovery in the housing sector slowed somewhat in recent months and fiscalpolicy is restraining economic growth. Apart from fluctuations due to changes inenergy prices, Inflation has been running continues to run well below theCommittee’s longer-run objective, but even though longer-term inflationexpectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximumemployment and price stability. The Committee expects that, with appropriate policyaccommodation, economic growth will pick up from its recent pace and theunemployment rate will gradually decline toward levels the Committee judgesconsistent with its dual mandate. The Committee sees the continues to see modestdownside risks to the outlook for the economy and the labor market as havingdiminished, on net, since last fall. The Committee recognizes that inflationpersistently below its 2 percent objective could pose risks to economic performance,but it anticipates that inflation will move and it will monitor inflation developmentscarefully for evidence that inflation is moving back toward its objective over themedium term.

3. Taking into account the extent of federal fiscal retrenchment over the past year sincethe inception of its current asset purchase program, the Committee sees theimprovement in economic activity and labor market conditions since it began its assetpurchase program over that period as consistent with growing underlying strength inthe broader economy. However, the Committee decided to await more evidence thatprogress will be sustained before adjusting judges that progress toward itsobjectives for the labor market and inflation is not yet sufficient to warrantreducing the pace of its purchases. Accordingly, the Committee decided to continuepurchasing additional agency mortgage-backed securities at a pace of $40 billion permonth and longer-term Treasury securities at a pace of $45 billion per month. TheCommittee is maintaining its existing policy of reinvesting principal payments fromits holdings of agency debt and agency mortgage-backed securities in agencymortgage-backed securities and of rolling over maturing Treasury securities atauction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financialconditions more accommodative, which in turn should promote a stronger economicrecovery and help to ensure that inflation, over time, is at the rate most consistentwith the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financialdevelopments in coming months and will continue its purchases of Treasury andagency mortgage-backed securities, and employ its other policy tools as appropriate,until the outlook for the labor market has improved substantially in a context of pricestability. In judging when to moderate the pace of asset purchases, the Committee


4 of 14

will, at its coming meetings, assess whether incoming information continues to supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular Indeed, to provide additional monetary accommodation, the Committee decided now intends to keep the its target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6½ [ 6 | 5½ ] percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. If inflation remains well contained when the unemployment threshold is reached, as the Committee expects, the Committee will consider a broad range of indicators of economic and financial conditions in determining how much longer to maintain the 0 to ¼ percent target range for the federal funds rate. Indicators relevant to a comprehensive assessment of labor market conditions include the level and growth of payroll employment, labor force participation, and measures of hiring and separation. The Committee expects to be patient in considering any increase in its target for the federal funds rate so long as inflation remains well behaved.

6. When the Committee eventually decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. Consistent with its current economic outlook, the Committee anticipates that keeping the target for the federal funds rate below its longer-run normal value for a considerable time will be appropriate to help achieve and maintain maximum employment and price stability.


5 of 14

FOMC STATEMENT—DECEMBER 2013 ALTERNATIVE B

1. Information received since the Federal Open Market Committee met in September October generally suggests indicates that economic activity has continued to is expanding at a moderate pace. Indicators of Labor market conditions have shown some further improvement; but the unemployment rate has declined but remains elevated. Available data suggest that Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing. Apart from fluctuations due to changes in energy prices, Inflation has been running below the Committee’s longer-run objective, but 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 that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the [ downside risks to the outlook for the economy and the labor market as having diminished, on net, | risks to the outlook for the economy and the labor market as having become more nearly balanced ] since last fall the inception of the asset purchase program. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it. The Committee anticipates that inflation will move back toward its objective over the medium term, but it will monitor inflation developments carefully.

3. Taking into account the extent of federal fiscal retrenchment over the past year since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program over that period as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month. The Committee is maintaining its existing 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. Taken together, these actions The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger


6 of 14

economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financialdevelopments in coming months and will continue its purchases of Treasury andagency mortgage-backed securities, and employ its other policy tools as appropriate,until the outlook for the labor market has improved substantially in a context of pricestability. In judging when to moderate the pace of asset purchases, the Committeewill, at its coming meetings, assess whether If incoming information continues tobroadly supports the Committee’s expectation of ongoing improvement in labormarket conditions and inflation moving back toward its longer-run objective, theCommittee will likely reduce the pace of asset purchases in further measuredsteps at future meetings. However, asset purchases are not on a preset course, andthe Committee’s decisions about their pace will remain contingent on theCommittee’s economic outlook as well as its assessment of the likely efficacy andcosts of such purchases.

5. To support continued progress toward maximum employment and price stability, theCommittee today reaffirmed its view that a highly accommodative stance of monetarypolicy will remain appropriate for a considerable time after the asset purchaseprogram ends and the economic recovery strengthens. In particular, The Committeedecided to keep the target range for the federal funds rate at 0 to ¼ percent andcurrently anticipates that this also reaffirmed its expectation that the currentexceptionally low target range for the federal funds rate of 0 to ¼ percent will beappropriate at least as long as the unemployment rate remains above 6½ percent,inflation between one and two years ahead is projected to be no more than a halfpercentage point above the Committee’s 2 percent longer-run goal, and longer-terminflation expectations continue to be well anchored. In determining how long tomaintain a highly accommodative stance of monetary policy, the Committee will alsoconsider other information, including additional measures of labor market conditions,indicators of inflation pressures and inflation expectations, and readings on financialdevelopments. The Committee now anticipates, based on its assessment of thesefactors, that it likely will be appropriate to maintain the current target range forthe federal funds rate well past the time that the unemployment rate declinesbelow 6½ percent, especially if projected inflation continues to run below theCommittee’s 2 percent longer-run goal. When the Committee decides to begin toremove policy accommodation, it will take a balanced approach consistent with itslonger-run goals of maximum employment and inflation of 2 percent.


7 of 14

FOMC STATEMENT—DECEMBER 2013 ALTERNATIVE C

1. Information received since the Federal Open Market Committee met in SeptemberOctober generally suggests indicates that economic activity has continued to isexpanding at a moderate pace. Indicators of Labor market conditions have shownsome further improvement; but the unemployment rate remains, although stillelevated, has continued to decrease. Available data suggest that Householdspending and business fixed investment advanced, while the recovery in the housingsector slowed somewhat in recent months. Fiscal policy is restraining economicgrowth, but the extent of restraint appears to be diminishing. Apart fromfluctuations due to changes in energy prices, Inflation has been running somewhatbelow the Committee’s longer-run objective, but longer-term inflation expectationshave remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximumemployment and price stability. Taking into account the extent of federal fiscalretrenchment, the Committee sees the cumulative improvement in economicactivity and labor market conditions since it began its current asset purchaseprogram as indicating growing underlying strength in the broader economy.The Committee expects that, with appropriate policy accommodation, economicgrowth will pick up from its recent pace and the unemployment rate will graduallycontinue to decline toward levels the Committee judges consistent with its dualmandate. The Committee sees the downside risks to the outlook for the economy andthe labor market as having diminished, on net, since last fall roughly balanced. TheCommittee recognizes that inflation persistently below its 2 percent objective couldpose risks to economic performance, but it anticipates that inflation will move backtoward its objective 2 percent over the medium term.

3. Taking into account the extent of federal fiscal retrenchment over the past year, theCommittee sees the improvement in economic activity and labor market conditionssince it began its asset purchase program as consistent with growing underlyingstrength in the broader economy. However, the Committee decided to await moreevidence that progress will be sustained before adjusting the pace of its purchases.Accordingly, the Committee decided to continue purchasing additional agencymortgage-backed securities at a pace of $40 billion per month and longer-termTreasury securities at a pace of $45 billion per month. In light of the cumulativeprogress toward maximum employment and the improvement in the outlook forthe labor market, the Committee decided to reduce the pace of its assetpurchases. Beginning in January, the Committee will add to its holdings ofagency mortgage-backed securities at a pace of [ $30 ] billion per month ratherthan $40 billion per month, and will add to its holdings of longer-term Treasurysecurities at a pace of [ $30 ] billion per month rather than $45 billion permonth. The Committee is maintaining its existing policy of reinvesting principalpayments from its holdings of agency debt and agency mortgage-backed securities inagency mortgage-backed securities and of rolling over maturing Treasury securities atauction. Taken together, these actions The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressureon longer-term interest rates, support mortgage markets, and help to make broader


8 of 14

financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financialdevelopments in coming months and will continue its purchases of Treasury andagency mortgage-backed securities, and employ its other policy tools as appropriate,until the outlook for the labor market has improved substantially in a context of pricestability. In judging when to moderate the pace of asset purchases, the Committeewill, at its coming meetings, assess whether If incoming information continues tobroadly supports the Committee’s expectation of ongoing improvement in labormarket conditions and inflation moving back toward its longer-run objective, theCommittee will likely reduce the pace of asset purchases in measured steps atfuture meetings. However, asset purchases are not on a preset course, and theCommittee’s decisions about their pace will remain contingent on the Committee’seconomic outlook as well as its assessment of the likely efficacy and costs of suchpurchases.

5. To support continued progress toward maximum employment and price stability, theCommittee today reaffirmed its view that a highly accommodative stance of monetarypolicy will remain appropriate for a considerable time after the asset purchaseprogram ends and the economic recovery strengthens. In particular, the Committeedecided to keep the target range for the federal funds rate at 0 to ¼ percent andcurrently anticipates that this exceptionally low range for the federal funds rate willbe appropriate at least as long as the unemployment rate remains above 6½ percent,inflation between one and two years ahead is projected to be no more than a halfpercentage point above the Committee’s 2 percent longer-run goal, and longer-terminflation expectations continue to be well anchored. In determining how long tomaintain a highly accommodative stance of monetary policy, the Committee will alsoconsider other information, including additional measures of labor market conditions,indicators of inflation pressures and inflation expectations, and readings on financialdevelopments. When the Committee decides to begin to remove policyaccommodation, it will take a balanced approach consistent with its longer-run goalsof maximum employment and inflation of 2 percent.

If the Committee judges it appropriate to convert the remainder of its flow-based asset purchase program to a fixed-size program in order to provide certainty about its intentions for bringing the program to a close, it could replace paragraphs 3 and 4 with the following: 3′. In light of the cumulative progress toward maximum employment and the

substantial improvement in the outlook for the labor market over the past year, the Committee today is announcing a plan to end its current asset purchase program. From January through June of 2014, the Committee will add [ $180 ] billion to its holdings of agency mortgage-backed securities at a pace of [ $30 ] billion per month, and also will add [ $180 ] billion to its holdings of longer-term Treasury securities at a pace of [ $30 ] billion per month, bringing the total increase in the Committee’s holdings of longer-term securities during 2013 and


9 of 14

2014 to approximately [ $1.4 ] trillion. The Committee is maintaining its existing 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. Even after the conclusion of the purchase program, the Committee’s sizable holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4′. The Committee will closely monitor incoming information on economic and financial developments. If that information is not broadly consistent with the Committee’s expectation of continued improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee is prepared to use its policy tools, including additional asset purchases, as appropriate to promote its longer-run goals.


10 of 14

October 2013 Directive Consistent with its statutory mandate, the Federal Open Market Committee seeks

monetary and financial conditions that will foster maximum employment and price

stability. In particular, 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

undertake open market operations as necessary to maintain such conditions. The Desk is

directed to continue purchasing longer-term Treasury securities at a pace of about $45

billion per month and to continue purchasing agency mortgage-backed securities at a

pace of about $40 billion per month. The Committee also directs the Desk to engage in

dollar roll and coupon swap transactions as necessary to facilitate settlement of the

Federal Reserve’s agency mortgage-backed securities transactions. The Committee

directs the Desk to maintain its policy of rolling over maturing Treasury securities into

new issues and its policy of reinvesting principal payments on all agency debt and agency

mortgage-backed securities in agency mortgage-backed 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.


11 of 14

DIRECTIVE FOR DECEMBER 2013 ALTERNATIVE A

Consistent with its statutory mandate, the Federal Open Market Committee seeks




undertake open market operations as necessary to maintain such conditions. The Desk is

directed to continue purchasing longer-term Treasury securities at a pace of about

$45 billion per month and to continue purchasing agency mortgage-backed securities at a

pace of about $40 billion per month. The Committee also directs the Desk to engage in

dollar roll and coupon swap transactions as necessary to facilitate settlement of the

Federal Reserve’s agency mortgage-backed securities transactions. The Committee

directs the Desk to maintain its policy of rolling over maturing Treasury securities into

new issues and its policy of reinvesting principal payments on all agency debt and agency

mortgage-backed securities in agency mortgage-backed 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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DIRECTIVE FOR DECEMBER 2013 ALTERNATIVE B





undertake open market operations as necessary to maintain such conditions. Beginning

in January, the Desk is directed to continue purchasing purchase longer-term Treasury

securities at a pace of about $45 $40 billion per month and to continue purchasing

purchase agency mortgage-backed securities at a pace of about $40 $35 billion per

month. The Committee also directs the Desk to engage in dollar roll and coupon swap

transactions as necessary to facilitate settlement of the Federal Reserve’s agency

mortgage-backed securities transactions. The Committee directs the Desk to maintain its

policy of rolling over maturing Treasury securities into new issues and its policy of

reinvesting principal payments on all agency debt and agency mortgage-backed securities

in agency mortgage-backed 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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DIRECTIVE FOR DECEMBER 2013 ALTERNATIVE C





undertake open market operations as necessary to maintain such conditions. Beginning

in January, the Desk is directed to continue purchasing purchase longer-term Treasury

securities at a pace of about $45 $30 billion per month and to continue purchasing

purchase agency mortgage-backed securities at a pace of about $40 $30 billion per

month. The Committee also directs the Desk to engage in dollar roll and coupon swap

transactions as necessary to facilitate settlement of the Federal Reserve’s agency

mortgage-backed securities transactions. The Committee directs the Desk to maintain its

policy of rolling over maturing Treasury securities into new issues and its policy of

reinvesting principal payments on all agency debt and agency mortgage-backed securities

in agency mortgage-backed 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.


14 of 14

Appendix 7: Materials used by Chairman Bernanke


Class I FOMC – Restricted Controlled (FR) Updated Materials on

Monetary Policy Alternatives

December 18, 2013



Page 1 of 9

OCTOBER FOMC STATEMENT

1. Information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace. Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee’s longer-run objective, but 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 that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

3. Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing 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. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.



Page 2 of 9

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.



Page 3 of 9

FOMC STATEMENT—DECEMBER 2013 ALTERNATIVE A

1. Information received since the Federal Open Market Committee met in September October generally suggests that economic activity has continued to expand is expanding at a moderate pace. Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that Household spending and business fixed investment advanced, while but the recovery in the housing sector slowed somewhat in recent months and fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, Inflation has been running continues to run well below the Committee’s longer-run objective, but even though 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 that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the continues to see modest downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move and it will monitor inflation developments carefully for evidence that inflation is moving back toward its objective over the medium term.

3. Taking into account the extent of federal fiscal retrenchment over the past year since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program over that period as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting judges that progress toward its objectives for the labor market and inflation is not yet sufficient to warrant reducing the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing 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. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee



Page 4 of 9

will, at its coming meetings, assess whether incoming information continues to supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular Indeed, to provide additional monetary accommodation, the Committee decided now intends to keep the its target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6½ [ 6 | 5½ ] percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. If inflation remains well contained when the unemployment threshold is reached, as the Committee expects, the Committee will consider a broad range of indicators of economic and financial conditions in determining how much longer to maintain the 0 to ¼ percent target range for the federal funds rate. Indicators relevant to a comprehensive assessment of labor market conditions include the level and growth of payroll employment, labor force participation, and measures of hiring and separation. The Committee expects to be patient in considering any increase in its target for the federal funds rate so long as inflation remains well behaved.

6. When the Committee eventually decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. Consistent with its current economic outlook, the Committee anticipates that keeping the target for the federal funds rate below its longer-run normal value for a considerable time will be appropriate to help achieve and maintain maximum employment and price stability.



Page 5 of 9

FOMC STATEMENT—DECEMBER 2013 ALTERNATIVE B

1. Information received since the Federal Open Market Committee met in September October generally suggests indicates that economic activity has continued to is expanding at a moderate pace. Indicators of Labor market conditions have shown some further improvement; but the unemployment rate has declined but remains elevated. Available data suggest that Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing. Apart from fluctuations due to changes in energy prices, Inflation has been running below the Committee’s longer-run objective, but 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 that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the [ downside risks to the outlook for the economy and the labor market as having diminished, on net, | risks to the outlook for the economy and the labor market as having become more nearly balanced ] since last fall the inception of the asset purchase program. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance [ , but it. The Committee anticipates that inflation will move back toward its objective over the medium term, but it will monitor inflation developments carefully. | , and it will monitor inflation developments carefully for evidence that inflation is moving back toward its objective over the medium term. ]

3. Taking into account the extent of federal fiscal retrenchment over the past year since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program over that period as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month. The Committee is maintaining its existing 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. Taken together, these actions The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure



Page 6 of 9

on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether If incoming information continues to broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, The Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to ¼ percent will be appropriate at least as long as the unemployment rate remains above 6½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6½ percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.



Page 7 of 9

FOMC STATEMENT—DECEMBER 2013 ALTERNATIVE C

1. Information received since the Federal Open Market Committee met in September October generally suggests indicates that economic activity has continued to is expanding at a moderate pace. Indicators of Labor market conditions have shown some further improvement; but the unemployment rate remains, although still elevated, has continued to decrease. Available data suggest that Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth, but the extent of restraint appears to be diminishing. Apart from fluctuations due to changes in energy prices, Inflation has been running somewhat below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Taking into account the extent of federal fiscal retrenchment, the Committee sees the cumulative improvement in economic activity and labor market conditions since it began its current asset purchase program as indicating growing underlying strength in the broader economy. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually continue to decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall roughly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective 2 percent over the medium term.

3. Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. In light of the cumulative progress toward maximum employment and the improvement in the outlook for the labor market, the Committee decided to reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of [ $30 ] billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of [ $30 ] billion per month rather than $45 billion per month. The Committee is maintaining its existing 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. Taken together, these actions The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader



Page 8 of 9

financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether If incoming information continues to broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

If the Committee judges it appropriate to convert the remainder of its flow-based asset purchase program to a fixed-size program in order to provide certainty about its intentions for bringing the program to a close, it could replace paragraphs 3 and 4 with the following: 3′. In light of the cumulative progress toward maximum employment and the

substantial improvement in the outlook for the labor market over the past year, the Committee today is announcing a plan to end its current asset purchase program. From January through June of 2014, the Committee will add [ $180 ] billion to its holdings of agency mortgage-backed securities at a pace of [ $30 ] billion per month, and also will add [ $180 ] billion to its holdings of longer-term Treasury securities at a pace of [ $30 ] billion per month, bringing the total increase in the Committee’s holdings of longer-term securities during 2013 and



Page 9 of 9

2014 to approximately [ $1.4 ] trillion. The Committee is maintaining its existing 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. Even after the conclusion of the purchase program, the Committee’s sizable holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4′. The Committee will closely monitor incoming information on economic and financial developments. If that information is not broadly consistent with the Committee’s expectation of continued improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee is prepared to use its policy tools, including additional asset purchases, as appropriate to promote its longer-run goals.


Appendix 8: Materials used by Mr. Potter


Statement Regarding Purchases of Treasury Securities and Agency Mortgage-Backed Securities

On December 18, 2013, the Federal Open Market Committee (FOMC) directed the Open Market Trading

Desk (the Desk) at the Federal Reserve Bank of New York to purchase additional agency mortgage-backed

securities (MBS) at a pace of about $35 billion per month and longer-term Treasury securities at a pace of

about $40 billion per month, beginning in January 2014. The existing December schedules for agency

MBS purchases at a pace of $40 billion per month and Treasury securities purchases at a pace of $45

billion per month remain in effect until that time. The FOMC also directed the Desk to maintain its

existing policies of reinvesting principal payments from the Federal Reserve’s holdings of agency debt and

agency MBS in agency MBS and of rolling over maturing Treasury securities at auction. The Committee’s

sizable and still-increasing holdings of longer-term securities should maintain downward pressure on

longer-term interest rates, support mortgage markets, and help to make broader financial conditions

more accommodative.

Purchases of agency MBS will continue to be concentrated in newly-issued agency MBS in the To-Be-

Announced (TBA) market, and purchases of longer-term Treasury securities will continue to be distributed

using the existing set of sectors and approximate weights. These purchase distributions could change if

market conditions warrant.

The amount of agency MBS to be purchased each month and the tentative schedule of Treasury purchase

operations for the following calendar month will continue to be announced on or around the last business

day of each month. Additionally, the planned amount of purchases associated with reinvestments of

principal payments on holdings of agency securities that are anticipated to take place over each monthly

period will be announced on or around the eighth business day of the month.

Consistent with current practices, the purchases of agency MBS and Treasury securities will be conducted

with the Federal Reserve’s eligible counterparties through a competitive bidding process and results will

be published on the Federal Reserve Bank of New York’s website. The Desk will continue to publish

transaction prices for individual operations at the end of each monthly period. All other purchase details

remain the same at this time.

Additional information on the purchases of agency MBS and longer-term Treasury securities can be found

in a set of Frequently Asked Questions for each asset class in the following locations:

Agency MBS: http://www.newyorkfed.org/markets/ambs/ambs_faq.html Treasury securities: http://www.newyorkfed.org/markets/longertermtreas_faq.html

December 17-18, 2013 Authorized for Public Release 245 of 245Class I FOMC - Restricted Controlled (FR) December 18, 2013

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