Presentation Materials (PDF)

Pages 202 to 261 of the Transcript

Appendix 1: Materials used by Mr. Sack

Class II FOMC - Restricted FR

Page 1

Top panel
(1)

Title: Treasury Yields
Series: Yields for the 2-Year, 5-Year, 10-Year, and 30-Year Treasury Notes
Horizon: August 1, 2007 - June 19, 2009
Description: Treasury yields rise following the April FOMC meeting.

Apr 29: FOMC

Source: Bloomberg

Middle-left panel
(2)

Title: Policy Expectations Implied by Futures Rates
Series: December 2009 Fed Funds implied rate, December 2010 Eurodollar rate implied by contract less 15-day moving average of forward Libor-Fed Funds Basis Swap
Horizon: August 1, 2008 - June 19, 2009
Description: December 2009 rate nearly remains constant, while December 2010 rate increases.

Source: Bloomberg

Middle-right panel
(3)

Title: Treasury Yield Curve
Series: Yields for the 1-Year, 2-Year, 3-Year, 5-Year, 7-Year, and 10-Year Treasury securities
Horizon: April 28, 2009 and June 19, 2009
Description: Treasury yield curve shifts upward ahead in June.

Source: Bloomberg

Bottom panel
(4)

Title: Factors Driving 10-Year Yield Change Over Intermeeting Period
Series: Aggregated Primary Dealer responses indicating importance of various factors in the 10-Year Yield
Horizon: As of June 17, 2009
Description: Primary Dealers indicate importance of varying factors in the change of the 10-Year Yield.

Factors with average level of importance from "Important" down to "Somewhat important": Improved economic outlook, Reduction in downside inflation risk, Increase in Treasury supply, Mortgage convexity hedging, Increase in upside inflation risk.

Source: Dealer Policy Survey

Page 2

Top-left panel
(5)

Title: Large-Scale Asset Purchase Programs
Series: Cumulative and expected totals for the Agency-MBS, Agency, and Treasury purchase programs
Horizon: December 2008 - December 2009
Description: Cumulative and expected totals for the Agency-MBS, Agency, and Treasury purchase programs.

Source: Federal Reserve Bank of New York

Top-right panel
(6) Large-Scale Asset Purchase Programs

* Median response  Return to table

Source: Dealer Survey

Middle panel
(7)

Title: Supply of Treasury Debt
Series: SOMA Treasury Holdings, Other Treasury Securities Outstanding, and SOMA as a Percent of Total
Horizon: January 2007 - June 2009
Description: Supply of Treasury debt increases while SOMA as a percent of total decreases.

Source: Federal Reserve Bank of New York

Bottom panel
(8)

Title: Mortgage and Treasury Rates
Series: Fannie Mae 30-Year Current Coupon, Blended 5-and 10-Year Treasury yield, Fannie Mae Option Adjusted Spread to Treasury
Horizon: June 1, 2008 - June 19, 2009
Description: Rates increase after March 18 MBS program expansion.

Nov 25: Program Announcement; Jan 5: First MBS Purchase; Mar 18: Program Expansion

Source: Bloomberg, JP Morgan Chase

Page 3

Top panel
(9)

Title: Breakeven Inflation Rates
Series: 5-Year Spot Breakeven Rate and 5-Year, 5-Year Forward Breakeven Rate
Horizon: August 1, 2007 - June 19, 2009
Description: Breakeven inflation rates increase.

Source: Barclays

Middle panel
(10)

Title: Probability Distribution of CPI Inflation Rate in 2014-2019
Series: Primary Dealer estimates for March, April, and June distributions of CPI rates
Horizon: 2014 - 2019
Description: Primary Dealer estimates for March, April, and June distributions of CPI rates

Estimated probability of 2.0-2.5% and 2.5-3.0% increased with each estimate. For June, 2.0-2.5% shows greatest probability at about 35%, and 2.5-3.0% shows second-greatest probability at about 25%.

Source: Dealer Policy Survey

Bottom panel
(11)

Title: Yield Curve Slope
Series: 10-Year Treasury Note Yield less Fed Funds rate, and NBER Recession Periods
Horizon: January 1, 1982 - June 19, 2009
Description: 10-Year Treasury yield spread to Fed Funds rate widens.

Shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): July 1981-November 1982, July 1990-March 1991, March 2001-November 2001, and December 2007-present (June 2009).

Source: Bloomberg

Page 4

Top panel
(12)

Title: Corporate Debt Spreads
Series: High Yield and Investment Grade corporate debt spreads
Horizon: June 1, 2008 - June 19, 2009
Description: Corporate debt spreads narrow.

Source: Bank of America

Middle panel
(13)

Title: Equity Prices
Series: Standard & Poor's 500 Index and its implied skew based on 90-day 25 delta put minus call
Horizon: June 1, 2008 - June 19, 2009
Description: Equity prices increase moderately and skew decreases moderately.

Source: Optionmetrics

Bottom panel
(14)

Title: US Trade-Weighted Dollar
Series: US Trade-Weighted Dollar
Horizon: June 1, 2008 - June 19, 2009
Description: The US trade-weighted dollar declines.

Source: Bloomberg

Page 5

Top panel
(15)

Title: Equity Indices for Financial Firms
Series: Supervisory Capital Assessment Program Banks Index and the Standard & Poor's 500 Index
Horizon: December 31, 2008 - June 19, 2009
Description: SCAP Banks Index increase greater than S&P 500 Index increase.

Feb 25: SCAP announced; Apr 24: SCAP white paper published; May 7: SCAP results

Source: Bloomberg

Middle panel
(16)

Title: SCAP Capital
Series: Supervisory Capital Assessment Program banks' Capital Raised and Capital Required
Horizon: January 29, 2009 - June 19, 2009
Description: Supervisory Capital Assessment Program banks' capital raised and capital required.

Source: Federal Reserve Bank of New York Staff Estimates

Bottom panel
(17)

Title: US Libor-OIS Spreads
Series: 3-Month USD Libor less Overnight Indexed Swap and 12-Month USD Libor less Overnight Indexed Swap
Horizon: January 1, 2007 - June 19, 2009
Description: Swap spreads narrow.

Source: Bloomberg

Page 6

Top panel
(18)

Title: Federal Reserve Short-Term Liquidity Facilities
Series: Levels of the Primary Credit Facility, Primary Dealer Credit Facility, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, Central Bank Liquidity Swaps, and Term Auction Facility
Horizon: August 1, 2008 - June 17, 2009
Description: Short-term facility assets continue to contract.

Source: Federal Reserve Bank of New York

Middle panel
(19)

Title: ABS Issuance
Series: Asset-Backed Security Term Asset-Backed Loan Facility Eligible and Non-Eligible Issuance
Horizon: Q1 2007 - Q2 2009 as of June 10, 2009
Description: ABS issuance increases greatly after TALF subscriptions begin.

Source: Federal Reserve Bank of New York, JP Morgan Chase

Bottom panel
(20)

Title: AAA-Rated Asset-Backed Spreads
Series: 3-Year Prime Auto, 3-Year Credit Card, and CMBS Super Senior spreads
Horizon: January 1, 2008 - June 19, 2009
Description: Asset-backed spreads narrow after TALF subscriptions begin.

Sep 14: Lehman bankruptcy; Nov 25: TALF announced; Mar 19: First TALF Subscription

Source: JPMorgan Chase

Page 7

Top panel
(21)

Title: Balance Sheet Assets by Category
Series: Federal Reserve balance sheet assets categorized by All Other, Lending to Systemically Important Institutions, Short-Term Liquidity Facilities, Large-Scale Asset Purchases, and Legacy Treasuries
Horizon: August 1, 2008 - June 17, 2009
Description: Short-term liquidity facility assets decline while large-scale asset purchases increase.

Source: Federal Reserve Bank of New York

Appendix 2: Materials used by Mr. Carpenter

Material for
FOMC Briefing on Projections of the Balance Sheet, the Monetary Base, and Federal Reserve Income
Seth Carpenter
June 23, 2009

Class I FOMC - Restricted Controlled (FR)

Exhibit 1: Individual Balance Sheet Item Profiles

Asset Purchases and Federal Reserve Liquidity and Credit Facilities

Twelve line charts, each showing a date range from 39783 (December 2008, expressed as an integer in days from the beginning of the twentieth century) through 42705 (December 2016). Except as noted, each chart shows two curves, "Current" and "April" projections.

• Temporary holdings of longer-term Treasuries are depicted to increase from zero at the end of 2008 to a late-2009 peak in each of four projections: "baseline," "expanded purchases," "April baseline," and "April expanded purchases." Each of the baseline scenarios peaks at approximately $300 billion and decreases to a level around $50 billion by the end of 2016. The expanded scenarios peak around $750 billion and decrease to approximately $100 billion and $150 billion under the April and current projections, respectively.
• Agency debt is depicted to increase from its December 2008 level of $20 billion to a peak of $200 billion in early 2009, and then decrease to approximately $25 billion at the end of the projection period. In the April projection, agency debt remains at the $200 billion peak through the end of 2011 and then decreases to $25 billion by the end of the projection period, whereas the current projection depicts agency debt beginning to decline immediately following the peak.
• Agency MBS is depicted to increase from zero at the beginning of the period to a peak of just over $1200 billion in early 2009, and then decrease to $600 billion under the April projection and $800 billion under the current projection.
• Primary and secondary credit facilities decrease from over $90 billion in December 2008 to near zero by early 2011 and 2012 in the current and April projections, respectively.
• Term auction facility (TAF) credit decreases from over $400 billion to zero by the end of 2010 and 2011 in the current and April projections, respectively.
• Foreign central bank liquidity swaps are shown to decrease from over $500 billion at the beginning of the projection period to zero by the end of 2010 in both projections. The rate of decrease through 2009 is greater in the current projection than in the April projection.
• Credit extended to AIG is depicted to increase from the December 2008 level of just under $40 billion to approximately $45 billion in early 2009, and then to decrease to zero at the end of 2014 in both projections.
• Current projections for the three Maiden Lane facilities. Maiden Lane III is projected to decrease from over $25 billion to zero by the end of 2012, including a sharp drop of about $7 billion in mid-2009. Maiden Lane and Maiden Lane II are depicted to decrease from over $25 billion and $20 billion, respectively, to zero at the end of 2015.
• Loans extended through the first wave of the Term Asset-Backed Securities Loan Facility (TALF v1.0) are depicted in both projections to increase from zero at the beginning of the projection period to $100 billion at the end of 2009. Under the April projection, TALF v1.0 maintains a $100 billion level through early 2012 and declines to zero by early 2013. The current projection shows TALF v1.0 increasing to $125 billion by early 2010, maintaining that level through mid-2012 and decreasing to zero by early 2014.
• For loans extended through subsequent waves of the TALF (TALF v2.0/3.0), the April projection shows credit outstanding rising from zero to $400 billion at the end of 2010, remaining at that level until early 2011, and falling to zero at the end of 2013. In the current projection, TALF v2.0/3.0 increases from zero to $50 billion at the end of 2010, remains at that level until mid-2014, and declines to zero at the end of 2015.
• Credit extended through the Commercial Paper Funding Facility (CPFF) is depicted to decline from over $300 billion at the beginning of the projection period to zero at the end of 2010 under both the current and April projections. The rate of decrease through 2009 is greater in the current projection than in the April projection.
• Credit extended through the Asset-Backed Commercial Paper Liquidity Facility (AMLF) is depicted in both projections to decrease from the December 2008 level of nearly $25 billion to around $5 billion in mid-2009. The April projection shows a gradual decline to zero at the end of 2010. In the current projection, AMLF spikes to a level over $25 billion in mid-2009, then decreases to a low level in early 2010, and to zero by the end of 2010.

Federal Reserve Liabilities and Capital

Four line charts, each showing a date range from 39783 (December 2008, expressed as an integer in days from the beginning of the twentieth century) through 42705 (December 2016).

• Federal Reserve notes are depicted to increase from their December 2008 level of just under $900 billion to over $1200 billion at the end of the period.
• Current and April projections are shown for the Treasury General Account (TGA) and the Supplementary Financing Program (SFP). The TGA declines from the December 2008 level of just over $100 billion to around $25 billion in early 2009. In the April projection, the TGA peaks in mid-2009 just below $100 billion and declines to $5 billion by the end of 2009. Under the current projection, the TGA peaks at a level over $130 billion in mid-2009, then dips below $25 billion and returns to a level above $100 billion again within a few months. Then, the current projection for the TGA declines to $5 billion by the end of 2009. The SFP drops from its December 2008 level of over $250 billion to $200 billion in mid-2009 in both projections. The level decreases to zero by the end of 2009 in the April projection, and by mid-2010 under the current projection.
• Capital is depicted to remain at a level of just over $40 billion through the entire period under the April projection, and to increase smoothly to a level of $129 billion at the end of the period under the current projection.
• Reserve balances are depicted under baseline and expanded purchases scenarios from the current and the April projections. In both of the April scenarios, reserve balances increase from their December 2008 level of around $750 billion to peak in late 2009 at nearly $2500 billion and $3000 billion, respectively. Both projections then decrease to approximately $25 billion by the end of 2015. In the current baseline and expanded scenarios, reserve balances peak in late 2009 over $1500 billion and $2000 billion, respectively, and decrease to approximately $25 billion and $100 billion, respectively, by the end of 2016.

*Corrected versions of these charts are available on pages 248-249 of 261.

Exhibit 2: Baseline Balance Sheet Projections

This exhibit provides a graphical description of the assumptions underlying the baseline balance sheet projections.

Top panel
Federal Reserve Assets

A line chart presents nine categories of assets: Treasury securities, Agency debt, Agency MBS, Repurchase agreements, TAF, Central bank swaps, TALF, Other loans and facilities, and Other assets. Each is depicted by a different color and the chart stacks the colors so that the share of the total that each asset represents is depicted. The date range for all projections is from 2006 to 2016. Total assets increase from their 2006 level of approximately $800 billion to peak in late 2009 at a level of approximately $2800 billion, and then decline fairly steadily until the end of 2016, ending at a level of approximately $1500 billion.

Bottom panel
Federal Reserve Liabilities and Capital

A stacked line chart presents six categories of liabilities and capital: Federal Reserve notes; Reverse repurchase agreements; Deposits, other than reserve balances; Reserve balances; Other liabilities; and Capital. Total liabilities and capital follow the same path as total assets.

Exhibit 3: Expanded Balance Sheet Projections

This exhibit is similar to Exhibit 2, but shows the assumptions underlying the expanded balance sheet projections.

Top panel
Federal Reserve Assets

A stacked line chart shows Federal Reserve assets, which in this expanded scenario peak in late 2009 at a level of approximately $3250 billion and decline steadily until the end of 2016, where they are at a level of approximately $1500 billion.

Bottom panel
Federal Reserve Liabilities and Capital

A stacked line chart shows Federal Reserve Liabilities and Capital, which follow the same pattern as the expanded scenario for assets.

Exhibit 4
Growth Rates for Monetary Base

Exhibit 5
Projected Federal Reserve Net Income

This exhibit has six line charts to describe three projections ("baseline," "market based," and "high interest rate"), each over a date range from 2008 to 2016. The three left-hand panels present net income and total expenses, each in a different color. These items are stacked and sum to show gross income. The right-hand panels show remittance and dividends, transfers, etc. in different colors. These items are stacked and sum to show net income.

Top-left panel
Baseline

In the baseline scenario, gross income is depicted to increase from its 2008 level of approximately $50 billion to peak in 2010 at nearly $90 billion and decline gradually through the end of the period to approximately $60 billion.

Top-right panel
Baseline

Baseline net income is depicted to increase from its December 2008 level of approximately $40 billion to peak in 2010 at approximately $80 billion, decrease through 2013 to approximately $45 billion, and then increase from 2014 through the end of the projection period to just over $50 billion.

Middle-left panel
Market based

In the market based scenario, gross income peaks in 2010 around $90 billion and decreases gradually through the end of the period, ending at a level of approximately $70 billion.

Middle-right panel
Market based

Net income is depicted to peak in 2010 at approximately $70 billion, decrease until 2012 to approximately $40 billion and then increase through the end of the projection period to approximately $60 billion.

Bottom-left panel
High interest rate

In the high interest rate scenario, gross income peaks in 2010 at around $110 billion and declines gradually through the end of the projection period to a level of about $80 billion.

Bottom-right panel
High interest rate

Net income is depicted declining sharply from approximately $45 billion in 2009 to a level of approximately negative $5 billion in 2011, then increasing gradually through the end of the period to about $50 billion.

Exhibit 6
Projected Mark-to-Market Losses on the SOMA Portfolio

Top panel

A line chart plots the same three scenarios that are used in Exhibit 5 from 2009 to 2016. The baseline scenario shows gains of as much as $50 billion on the portfolio through 2013, and then losses increasing through 2016 to just over $50 billion. In the market based scenario, losses increase from zero in 2009 to approximately $125 billion in 2013, and remain at that level through 2016. The high interest rate scenario depicts losses in 2009 of about $100 billion, increasing to a loss in 2011 of more than $250 billion, and then decreasing to a loss of less than $200 billion in 2016.

Appendix 3: Materials used by Mr. English

Material for FOMC Briefing on Possible Effects of Very High Reserve Balances on Bank Balance Sheets
Bill English
June 23, 2009

Class II FOMC - Restricted (FR)

Exhibit 1
Reserve Balances and Regulatory Leverage Ratios

Top-left panel
Reserve balances of depository institutions

Data plotted as curves. Reserve balances of depository institutions rises from about $40 billion in 2008:Q3 to about $800 billion in 2009:Q2. Thereafter, the data are projected. Under the Bluebook baseline scenario, reserve balances of depository institutions rise to a peak of about $1.7 trillion in 2010:Q1 and then gradually decline, reaching about $1.4 trillion in 2010:Q4. Under the Bluebook alternative scenario, reserve balances of depository institutions increase to a peak of about $2.1 trillion in 2010:Q1 and then gradually decline, reaching about $1.8 trillion in 2010:Q4.

Note. The data are quarterly averages in billions of dollars.

Source. Federal Reserve and staff estimates.

Top-right panel
Regulatory leverage ratio

• Definition:
  \( \frac{Tier 1 capital}{Average total assets} \)
• Ratio > 5.0 for a "well capitalized" bank

Leverage Ratio Projections

Middle-left panel
Projection assumptions

• Reserve balances expand in line with Bluebook scenarios
• Other assets unchanged
• Tier 1 capital declines

Middle-right panel
Baseline results

Note. Baseline scenario without any capital downstreamed to banks after 2009:Q1. All commercial banks with reserve balances.

Source. Call Reports and staff estimates.

Bottom-left panel
Aggregate leverage ratio of commercial banks with reserve balances

Data plotted as curves. The aggregate leverage ratio of commercial banks with reserve balances moves in a narrow range around 7.5 percent between 1999:Q1 and 2009:Q1. Thereafter, the data are projected one year ahead, for the 2010:Q1 quarter. For the projection under the Bluebook baseline scenario, the aggregate leverage ratio of commercial banks with reserve balances is 6.99 percent in 2010:Q1. For the projection under the Bluebook alternative scenario, the aggregate leverage ratio of commercial banks with reserve balances is 6.83 percent in 2010:Q1. The projections are repeated under the assumption that all capital raised as a result of the SCAP is downstreamed to subsidiary banks. Under this assumption and for the projection under the Bluebook baseline scenario, the aggregate leverage ratio of commercial banks with reserve balances is 7.60 percent in 2010:Q1. Under this assumption and for the projection under the Bluebook alternative scenario, the aggregate leverage ratio of commercial banks with reserve balances is 7.43 percent in 2010:Q1.

Note. The data are quarterly in percent. A shaded bar indicates a period of business recession as defined by the National Bureau of Economic Research (NBER): March 2001-November 2001. A vertical line indicates the NBER Peak in December 2007.

Source. Call Reports and staff estimates.

Bottom-right panel
Other results

• Broadly similar results for BHCs
• Leverage ratios for some individual banks could fall to low levels relative to regulatory norms
  • Individual institutions can take steps to reduce unwanted reserves

Exhibit 2
Qualitative Information and Policy Options

Top panel
Information from consultations with Federal Reserve System staff

• Banking organizations have not expressed material concerns about their reserve balances
• Some banks have maintained high levels of reserve balances as a liquidity buffer
• Some banks have profited by exploiting the spread between the rate paid on excess reserves and the cost of borrowing
• Banks thought that they could reduce their reserve balances if they chose
• Banking organizations have not discussed with System staff the possible effects of increased systemwide reserves

Bottom-left panel
Summary

• Depository institutions should not be significantly adversely affected by the anticipated levels of reserve balances
• No policy response appears necessary at this time
• Considerable uncertainty remains
• Staff will continue to monitor the impact on depository institutions

Bottom-right panel
Policy options

• Option 1: Drain reserves
• Option 2: Exclude reserve balances from leverage ratio for all banking institutions
• Option 3: Exclude reserve balances from leverage ratio for selected banking institutions
• Option 4: Issue supervisory guidance

Appendix 4: Materials used by Messrs. Clouse and Hilton

Material for FOMC Briefing on Reserve Management Tools to Target a Higher Policy Rate
Jim Clouse
Spence Hilton
June 23, 2009

Class I FOMC - Restricted-Controlled (FR)

Exhibit 1

This exhibit contains three line charts that depict hypothetical demand and supply curves in the reserve market to illustrate the effects of various reserve management tools.

Top panel
Reserve Market

The chart displays a hypothetical demand for reserves, with the funds rate on the vertical axis and reserve balances on the horizontal axis. The hypothetical demand curve asymptotes to the level of the rate paid on excess reserves--the so-called IOER rate--at high levels of reserve balances. A second demand curve on the same chart shows what the demand curve might have looked like in the last quarter of 2008. This demand curve drops below the level of the IOER rate at high levels of reserve balances. With this demand curve, a rapid expansion of reserve balances such as that late in 2008 would push the federal funds rate below the IOER rate.

Middle panel
Demand Side Tools

The chart displays the effect of various tools that might be employed to keep the funds rate close to the target rate even with high levels of reserve balances. The tools described in this panel are those that strengthen or shape the demand curve including increases in reserve requirements, a system of voluntary requirements, payment of interest on balances held by the government sponsored enterprises (GSEs), and collateralized funds transactions. The chart shows that these tools would tend to shift the demand curve to the right, or flatten the demand curve at high levels of reserve balances, or both. With a fixed quantity of reserves, these tools should then put upward pressure on the funds rate.

Bottom panel
Supply Side Tools

The chart displays the effects of various tools focused on the supply of reserves. These tools include reverse RPs, term deposits, issuance of so-called "Fed bills," an expanded supplementary finance program, asset sales, or reductions in liquidity programs. In the diagram, all of these tools would shift the supply of reserves to the left and so put upward pressure on the funds rate.

Appendix 5: Materials used by Mr. Madigan

Material for Briefing on Staff Proposal Regarding Liquidity Facilities
Brian Madigan
June 23, 2009

Class I FOMC - Restricted Controlled (FR)

Appendix 6: Materials used by Messrs. Kiley and Sheets

Class II FOMC - Restricted (FR)

Exhibit 1
Recent Indicators

Top-left panel
Change in Private Payroll Employment

Note: Three-month moving average.

Top-right panel
Manufacturing IP

Note: Three-month percent changes.

Middle-left panel
Real Personal Consumption Expenditures

Middle-right panel
Sales of Single-Family Homes

Bottom-left panel
Orders and Shipments of Nondefense Capital Goods*

* Excluding aircraft.  Return to text

Note: Three-month moving average.

Bottom-right panel
Real GDP Forecast

Exhibit 2
Medium-Term Outlook

Top panel
Factors Affecting GDP Forecast

• Inventory dynamics provide a lift in the second half of this year.
• Housing stabilizes and we expect construction to turn up next year.
• Risk premiums on corporate equity and debt decline further, contributing to gains in wealth and a lower cost of capital.

Middle-left panel
Contributions to Growth in Real GDP

Middle-right panel
Contribution of Wealth to PCE Growth

Bottom-left panel
BFI and the Accelerator

Note: BFI share equals nominal BFI divided by nominal nonfarm business (NFB) output. NFB output growth is measured as the percent change from four quarters earlier, lagged two quarters.

Bottom-right panel
Real GDP Forecast

Exhibit 3
Inflation

Top-left panel
PCE Price Index

Top-right panel
Unemployment Rate

Middle-left panel
PCE Energy Prices

Middle-right panel
Core Nonfuel Import Prices

Bottom panel
PCE Price Index

Exhibit 4
Risk I: Uncertainty Regarding Resource Utilization

Top-left panel
Output and Unemployment Gaps

Top-right panel
Interpreting Recent Output and Unemployment Gaps

• Output and unemployment gaps typically provide similar signals.
• Possible explanations for recent discrepancy:
  • GDP data understate contraction.
  • Participation boosted by EUC, wealth decline, or other factors.
  • Changes in NAIRU or other elements of potential.

Middle-left panel
Initial and Current Staff Estimate of the Output Gap (1987-2008)

Middle-right panel
Model Uncertainty and Resource Utilization

• Different methods imply different estimates of potential.
• Consider three methods:
  • Staff estimate.
  • Trend/cycle Phillips curve model.
  • Estimated DSGE (EDO) model.

Bottom panel
Alternative Estimates of the Output Gap with Confidence Intervals

CI Confidence interval

Exhibit 5
Risk II: Inflation Dynamics

Top-left panel
Expectations and Inflation

• Long-run inflation expectations have been reasonably well-anchored for some time.
• In our projection, this prevents a sharper deceleration in inflation.
• Un-mooring of expectations is a risk.

Top-right panel
Long-Term Inflation Expectations

Middle-left panel
Resource Utilization and Inflation

• Inflation appears to be less sensitive to resource utilization than in the past.
• This reduced sensitivity contributed to our projection that inflation will decelerate by less than during similar earlier periods.
• If the effect of utilization on inflation were similar to that during the early 1980s, we could see deflation.

Middle-right panel
Slope of a Simple Phillips Curve

Note: From a Phillips curve for core PCE inflation using annual data and 20-year rolling estimation samples.

CI Confidence interval

Alternative Simulations

Bottom-left panel
Core PCE Prices

CI Confidence interval

Bottom-right panel
Federal Funds Rate

CI Confidence interval

Exhibit 6
The Dollar and Financial Markets

Top-left panel
Broad Real Dollar

Top-center panel
AFE Exchange Rates

Note: A vertical line indicates the FOMC meeting on April 28-29, 2009.

Top-right panel
EME Exchange Rates

Note: A vertical line indicates the FOMC meeting on April 28-29, 2009.

Middle-left panel
BBB Corporate Spreads

Middle-right panel
Equity Prices

Bottom-left panel
Commodity Prices

Bottom-right panel
Baltic Dry Index

Average 2003-2008: 102.29

Exhibit 7

Other Explanations for Recent Dollar Movements

Top-left panel
10-Year Government Bonds

Note: As shown in the figure, the series extend to about June 19, 2009. United States generally increases to end at about 3.7. United Kingdom generally increases to about 3.75 by early February, decreases to nearly 3.0 by mid-March, and increases to end at about 3.85. Germany generally increases to end at about 3.5. Japan generally increases to end at about 1.5.

Top-right panel
Five-Year Sovereign CDS Premiums

U.S. External Sector

Middle-left panel
Trade in Real Goods and Services

* Change from final quarter of preceding period to final quarter of period indicated.  Return to table

Middle-right panel
Real GDP

* Approximate change from final quarter of preceding period to final quarter of period indicated.  Return to table

Bottom-left panel
Current Account

Bottom-right panel
Oil Import Balance

Exhibit 8
Outlook for Growth in the Advanced Foreign Economies

Top panel
Real GDP*

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

** Change from final quarter of preceding period to final quarter of period indicated.  Return to table

Middle-left panel
Purchasing Managers Indexes*

* Total economy PMIs. Latest value for euro area is flash estimate.  Return to text

Middle-right panel
Retail Sales Volume

* Monthly real consumption.  Return to table

Bottom-left panel
Contributions of Fiscal Stimulus

Note: Values are approximate.

Source: Staff estimates.

Bottom-center panel
Unemployment Rate*

* Greenbook forecast for U.S.; forecasts from simple regression for others.  Return to text

Bottom-right panel
Output Gaps

* Deviation from potential GDP.  Return to table

Exhibit 9 (Last)
Outlook for Growth in the Emerging Market Economies

Top panel
Real GDP*

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

** Change from final quarter of preceding period to final quarter of period indicated.  Return to table

China

Middle-left panel
Recent Indicators

* Staff estimate from year to date figures.  Return to table

Middle-right panel
Imports and Electricity Production

* 2009:Q1 values are approximate. 2009:Q2 values are approximate average of April and May at annual rate.  Return to table

** Source: Haver Analytics. In nominal U.S. dollars.  Return to table

Other Emerging Market Economies

Bottom-left panel
Purchasing Managers Indexes*

* Manufacturing sector.  Return to text

Bottom-center panel
Industrial Production

Bottom-right panel
Exports

Appendix 7: Materials used by Mr. Madigan

Material for Briefing on FOMC Participants' Economic Projections
Brian Madigan
June 23-24, 2009

Class I FOMC - Restricted Controlled (FR)