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Federal Reserve Board of Governors

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Figure 1: The Effects of Forward Guidance on the Expected Path of the Federal Funds Rate

        Blue Chip Consensus Outlook
Date December 1, 2008 February 1, 2009
2008Q3 1.94 1.94
2008Q4 0.90 0.51
2009Q1 0.60 0.10
2009Q2 0.60 0.10
2009Q3 0.70 0.20
2009Q4 1.00 0.30
2010Q1 1.40 0.50
2010Q2 ND 0.90

ND No Data Return to table

Note: This figure depicts the consensus of professional forecasters regarding the quarterly average value of the federal funds rate at forecast horizons from 0 to 6 quarters ahead as of December 1, 2008 (dashed line) and February 1, 2009 (solid line); these projections are taken from Blue Chip Financial Indicators, a monthly survey owned by Aspen Publishers, Inc. Copyright © 2008, 2009 by Aspen Publishers, Inc. All rights reserved.

Figure 2: The Conditionality of Forward Guidance and the Evolution of Federal Funds Rate

        Market Expectations April to November 2010
Date April 1, 2010 August 2, 2010 November 3, 2010
2010Q1 0.13 0.13 0.13
2010Q2 0.18 0.19 0.19
2010Q3 0.18 0.18 0.19
2010Q4 0.21 0.16 0.18
2011Q1 0.27 0.14 0.14
2011Q2 0.57 0.14 0.12
2011Q3 0.90 0.20 0.10
2011Q4 1.22 0.27 0.08
2012Q1 1.55 0.39 0.10
2012Q2 1.87 0.56 0.11
2012Q3 2.17 0.74 0.15
2012Q4 2.45 0.91 0.21


 

        Market Expectations November 2010 to February 2011
Date November 3, 2010 February 22, 2011
2011Q1 0.14 0.14
2011Q2 0.12 0.10
2011Q3 0.10 0.14
2011Q4 0.08 0.23
2012Q1 0.10 0.39
2012Q2 0.11 0.68
2012Q3 0.15 1.01
2012Q4 0.21 1.32
2013Q1 0.30 1.59
2013Q2 0.44 1.91
2013Q3 0.58 2.18
2013Q4 0.75 2.44

Note: This figure depicts financial market expectations for the federal funds rate at forecast horizons from 0 to 12 quarters ahead; these expectations are computed by staff using price quotes from CME Group on federal funds and Eurodollar futures contracts. The left panel depicts expectations as of April 1, 2010 (solid line), August 2, 2010 (long dashed line), and November 3, 2010 (short dashed line). The right panel depicts expectations as of November 3, 2010 (dashed line) and February 22, 2011 (solid line).

Figure 3: Macroeconomic Effects of an Illustrative Change in Forward Guidance

         Federal Funds Rate
Date Illustrative Baseline Scenario Later lift-off
2011Q1 0.14 0.14
2011Q2 0.10 0.10
2011Q3 0.14 0.14
2011Q4 0.23 0.13
2012Q1 0.39 0.13
2012Q2 0.67 0.13
2012Q3 1.01 0.24
2012Q4 1.32 0.55
2013Q1 1.59 0.87
2013Q2 1.91 1.20
2013Q3 2.18 1.50
2013Q4 2.44 1.80
2014Q1 2.68 2.10
2014Q2 2.90 2.40
2014Q3 3.10 2.70
2014Q4 3.28 3.00
2015Q1 3.44 3.30
2015Q2 3.58 3.58
2015Q3 3.70 3.83
2015Q4 3.81 4.03
2016Q1 3.91 4.18
2016Q2 3.99 4.29
2016Q3 4.05 4.37
2016Q4 4.11 4.42


 

         Unemployment and Inflation
Date Unemployment Rate Core PCE Inflation
2011Q1 -0.01 0.07
2011Q2 -0.05 0.13
2011Q3 -0.11 0.20
2011Q4 -0.17 0.27
2012Q1 -0.23 0.28
2012Q2 -0.29 0.30
2012Q3 -0.35 0.31
2012Q4 -0.39 0.31
2013Q1 -0.43 0.31
2013Q2 -0.45 0.30
2013Q3 -0.47 0.30
2013Q4 -0.48 0.29
2014Q1 -0.48 0.29
2014Q2 -0.46 0.28
2014Q3 -0.45 0.26
2014Q4 -0.42 0.25
2015Q1 -0.40 0.24
2015Q2 -0.37 0.22
2015Q3 -0.33 0.20
2015Q4 -0.30 0.18
2016Q1 -0.26 0.16
2016Q2 -0.23 0.14
2016Q3 -0.19 0.12
2016Q4 -0.16 0.09

Note: This figure depicts simulation results of the Federal Reserve Board staff's FRB/US model of the U.S. economy. The left panel shows the path of the federal funds rate under the baseline scenario corresponding to market expectations (solid line) and under an alternative "later lift-off" scenario (dashed line). The right panel shows the unemployment rate (solid line) and the core personal consumption expenditures (PCE) inflation rate (dashed lines), expressed as deviations of the alternative scenario from baseline.

Table 1: Responses of Longer-Term Interest Rates to News about the Federal Reserve's Asset Purchases

Date 10-Year Treasury Yield 10-Year TIPS Yield 30-Year MBS Yield 10-Year BBB Corporate Bond Yield
Nov. 25, 2008 -21 -24 -44 -16
Dec. 1, 2008 -20 -22 -12 -25
March 18, 2009 -50 -49 -15 -47
Aug. 10 to Nov. 3, 2010 -15 -54 -13 -22

Note: The table displays basis point changes from close of business on the day before the announcement to close of business on the day of the announcement, with the exception of the final row, which shows the change from close of business on the day before the Aug. 10, 2010, Federal Open Market Committee (FOMC) meeting through the close of business on the day of the Nov. 3, 2010, FOMC meeting. Changes in the 10-year nominal Treasury yield are computed using a smoothed yield curve estimated by staff from off-the-run Treasury coupon securities. Changes in the yield on 10-year Treasury inflation-protected securities (TIPS) are computed by staff using a smoothed inflation-indexed yield curve. Changes in the yield on 30-year mortgage-backed securities (MBS) are computed using Bloomberg data on securities issued by Fannie Mae. Changes in the yield on 10-year BBB-rated corporate bonds are computed using a smoothed yield curve estimated by staff using Merrill Lynch data.

Figure 4: Did the March 2009 FOMC Announcement Shift the Expected Path of the Federal Funds Rate?

        Blue Chip Consensus Outlook
Date March 1, 2009 April 1, 2009
2009Q1 0.2 0.19
2009Q2 0.2 0.2
2009Q3 0.2 0.2
2009Q4 0.2 0.2
2010Q1 0.5 0.3
2010Q2 0.7 0.5
2010Q3 ND 0.9
2010Q4 ND ND

ND No Data Return to table
 

         Market Expectations
Date March 17, 2009 March 19, 2009
2009Q1 ND 0.18
2009Q2 0.20 0.20
2009Q3 0.22 0.21
2009Q4 0.25 0.21
2010Q1 0.28 0.24
2010Q2 0.33 0.38
2010Q3 0.50 0.50
2010Q4 0.78 0.67

 

Note: The left panel shows the consensus outlook for the federal funds rate as of March 1, 2009 (dashed line) and April 1, 2009 (solid line); these projections are taken from Blue Chip Financial Indicators, a monthly survey owned by Aspen Publishers, Inc. Copyright © 2008, 2009 by Aspen Publishers, Inc. All rights reserved. The right panel shows market expectations computed by staff using price quotes from CME Group on federal funds and Eurodollar future contracts as of March 17, 2009 (dashed line) and March 19, 2009 (solid line).

Figure 5: An Illustrative Scenario for the Federal Reserve's Securities Holdings

        Federal Reserve's Securities Holdings
Date Illustrative Baseline Scenario No Asset Purchase Program
2009Q2 1.22 0.85
2009Q3 1.59 0.85
2009Q4 1.84 0.87
2010Q1 2.01 0.88
2010Q2 2.06 0.90
2010Q3 2.04 0.91
2010Q4 2.16 0.92
2011Q1 2.40 0.94
2011Q2 2.64 0.95
2011Q3 2.64 0.97
2011Q4 2.64 0.98
2012Q1 2.64 1.00
2012Q2 2.64 1.02
2012Q3 2.56 1.03
2012Q4 2.48 1.05
2013Q1 2.40 1.07
2013Q2 2.32 1.09
2013Q3 2.24 1.10
2013Q4 2.16 1.12
2014Q1 2.08 1.14
2014Q2 2.00 1.16
2014Q3 1.92 1.18
2014Q4 1.84 1.20
2015Q1 1.76 1.22
2015Q2 1.68 1.24
2015Q3 1.60 1.26
2015Q4 1.52 1.28
2016Q1 1.44 1.30
2016Q2 1.36 1.32
2016Q3 1.34 1.34
2016Q4 1.36 1.36
2017Q1 1.38 1.38
2017Q2 1.40 1.40
2017Q3 1.43 1.43
2017Q4 1.45 1.45
2018Q1 1.47 1.47
2018Q2 1.50 1.50
2018Q3 1.52 1.52
2018Q4 1.54 1.54

Note: This figure depicts the Federal Reserve's securities holdings under an illustrative baseline scenario (solid line) and under an alternative scenario in which the Federal Reserve never conducts any securities purchases (dashed line).

Source: Figure 9 of Chung, Laforte, Reifschneider, and Williams (2011).

Figure 6: Gauging the Macroeconomic Effects of the Federal Reserve's Asset Purchases

        Unemployment Rate
Date Illustrative Baseline Scenario No Asset Purchase Program
2009Q2 9.28 9.31
2009Q3 9.68 9.80
2009Q4 10.00 10.24
2010Q1 9.69 10.06
2010Q2 9.65 10.14
2010Q3 9.58 10.19
2010Q4 9.62 10.37
2011Q1 9.30 10.19
2011Q2 9.20 10.24
2011Q3 9.00 10.18
2011Q4 8.80 10.09
2012Q1 8.70 10.09
2012Q2 8.60 10.06
2012Q3 8.50 10.01
2012Q4 8.30 9.83
2013Q1 8.10 9.62
2013Q2 7.90 9.40
2013Q3 7.70 9.15
2013Q4 7.60 8.99
2014Q1 7.40 8.72
2014Q2 7.30 8.53
2014Q3 7.20 8.34
2014Q4 7.10 8.14
2015Q1 7.00 7.94
2015Q2 6.90 7.73
2015Q3 6.75 7.48
2015Q4 6.60 7.23
2016Q1 6.45 6.99
2016Q2 6.30 6.75
2016Q3 6.20 6.56
2016Q4 6.10 6.39
2017Q1 6.00 6.23
2017Q2 5.95 6.12
2017Q3 5.90 6.02
2017Q4 5.90 5.98
2018Q1 5.90 5.95
2018Q2 5.90 5.93
2018Q3 5.90 5.91
2018Q4 5.90 5.90


 

        Core CPE Inflation
Date Illustrative Baseline Scenario No Asset Purchase Program
2009Q2 1.48 1.33
2009Q3 1.32 1.04
2009Q4 1.69 1.25
2010Q1 1.77 1.17
2010Q2 1.46 0.84
2010Q3 1.22 0.51
2010Q4 0.81 -0.01
2011Q1 0.75 -0.16
2011Q2 0.82 -0.18
2011Q3 1.01 -0.03
2011Q4 1.25 0.21
2012Q1 1.38 0.33
2012Q2 1.44 0.40
2012Q3 1.51 0.50
2012Q4 1.58 0.59
2013Q1 1.61 0.67
2013Q2 1.65 0.75
2013Q3 1.68 0.83
2013Q4 1.70 0.92
2014Q1 1.74 1.02
2014Q2 1.78 1.12
2014Q3 1.83 1.24
2014Q4 1.88 1.36
2015Q1 1.93 1.48
2015Q2 1.98 1.60
2015Q3 2.03 1.72
2015Q4 2.06 1.82
2016Q1 2.09 1.91
2016Q2 2.10 1.99
2016Q3 2.10 2.05
2016Q4 2.10 2.11
2017Q1 2.10 2.17
2017Q2 2.10 2.22
2017Q3 2.10 2.27
2017Q4 2.10 2.31
2018Q1 2.10 2.34
2018Q2 2.10 2.37
2018Q3 2.10 2.39
2018Q4 2.10 2.41

Note: This figure depicts simulation results of the FRB/US model of the U.S. economy. The left panel shows the unemployment rate and the right panel shows the core personal consumption expenditures (PCE) inflation rate. Each panel depicts the illustrative baseline (solid line) and an alternative scenario in which the Federal Reserve never conducts any securities purchases (dashed line).

Figure 7: Macroeconomic Effects of an Illustrative Change in the Path of Securities Holdings

         Securities Holdings
Date Illustrative Baseline Scenario Rapid Run-Off
2009Q2 1.22 1.22
2009Q3 1.59 1.59
2009Q4 1.84 1.84
2010Q1 2.01 2.01
2010Q2 2.06 2.06
2010Q3 2.04 2.04
2010Q4 2.16 2.16
2011Q1 2.40 2.40
2011Q2 2.64 2.64
2011Q3 2.64 2.64
2011Q4 2.64 2.64
2012Q1 2.64 2.64
2012Q2 2.64 2.64
2012Q3 2.56 2.42
2012Q4 2.48 2.19
2013Q1 2.40 1.97
2013Q2 2.32 1.74
2013Q3 2.24 1.52
2013Q4 2.16 1.29
2014Q1 2.08 1.14
2014Q2 2.00 1.16
2014Q3 1.92 1.18
2014Q4 1.84 1.20
2015Q1 1.76 1.22
2015Q2 1.68 1.24
2015Q3 1.60 1.26
2015Q4 1.52 1.28
2016Q1 1.44 1.30
2016Q2 1.36 1.32
2016Q3 1.34 1.34
2016Q4 1.36 1.36
2017Q1 1.38 1.38
2017Q2 1.40 1.40
2017Q3 1.43 1.43
2017Q4 1.45 1.45
2018Q1 1.47 1.47
2018Q2 1.50 1.50
2018Q3 1.52 1.52
2018Q4 1.54 1.54


 

         Unemployment and Inflation
Date Illustrative Baseline Scenario Rapid Run-Off
2011Q1 0.00 0.00
2011Q2 0.00 0.00
2011Q3 0.02 -0.05
2011Q4 0.06 -0.08
2012Q1 0.11 -0.13
2012Q2 0.18 -0.17
2012Q3 0.24 -0.17
2012Q4 0.30 -0.17
2013Q1 0.35 -0.18
2013Q2 0.39 -0.17
2013Q3 0.41 -0.17
2013Q4 0.43 -0.16
2014Q1 0.44 -0.16
2014Q2 0.44 -0.15
2014Q3 0.43 -0.14
2014Q4 0.41 -0.14
2015Q1 0.39 -0.13
2015Q2 0.36 -0.12
2015Q3 0.33 -0.11
2015Q4 0.29 -0.10
2016Q1 0.25 -0.08
2016Q2 0.22 -0.07
2016Q3 0.18 -0.05
2016Q4 0.15 -0.03

Note: This figure depicts simulation results of the FRB/US model of the U.S. economy. The left panel shows the path of the Federal Reserve's securities holdings (in $ trillions) under an illustrative baseline scenario (solid line) and an alternative "rapid runoff" scenario (dashed line). The right panel shows the unemployment rate (solid line) and the core personal consumption expenditures (PCE) inflation rate (dashed lines), with results expressed as deviations of the alternative scenario from the baseline scenario.

Last update: August 2, 2013