Presentation Materials (PDF)

Pages 239 to 282 of the Transcript

Appendix 1: Materials used by Mr. Kiley

Material for
Alternative Monetary Policy Frameworks

Briefing by Michael T. Kiley
November 1, 2011

Exhibit 1
Alternative Monetary Policy Frameworks

Top panel
Flexible-Inflation Targeting and Commitment

• Flexible inflation targeting combines commitment to a medium-run inflation objective with the flexibility to moderate deviations of employment from its "full employment" level.
• We assumed that the Committee aims to achieve:
  • An inflation rate of 2 percent.
  • An unemployment rate in the range of 5 to 6 percent.
• We focused on how strategies that involve making conditional commitments can contribute to improved macroeconomic outcomes.

Middle-left panel
Federal Funds Rate

Middle-right panel
Unemployment Rate

Bottom-left panel
PCE Prices

Bottom-right panel
Lessons

• Optimal policies involve commitments to hold the nominal funds rate near zero persistently.
• Unemployment falls below its natural rate and inflation may rise above its target later in the decade.
• Optimal policies do not result in inflation above 2½ percent for a protracted period under the modal outlook.

Exhibit 2
Practical Approaches

Top-left panel
Strategies

• Notable improvements in resource utilization were achieved by two strategies:
  • Inertial version of the Taylor 1999 rule
  • Nominal income targeting
• Price-level targeting resulted in poorer performance, on average.

Top-right panel
Nominal GDP

Middle-left panel
Federal Funds Rate

Middle-center panel
Unemployment Rate

Middle-right panel
PCE Prices

Bottom panel
Key Results

• The inertial Taylor 1999 rule approach brings about a notable improvement in the unemployment rate at the cost of higher inflation.
• Nominal income targeting also improves outcomes for unemployment while bringing inflation closer to 2 percent.
• Each strategy involves clear and credible commitments over the next five-to-ten years.
  • Laying out the course of the federal funds rate or communicating the conditions that may trigger the onset of tightening could facilitate achieving better outcomes.

Exhibit 3
Robustness

Top-left panel
Recession Scenario

• Aggregate demand weakens enough to bring the unemployment rate to over 11½ percent for much of 2012 and 2013 under the baseline strategy.
• For the baseline strategy we use the outcome-based rule reported in the Tealbook.
• This could be interpreted as a continuation of the Committee's historical approach.

Top-right panel
Federal Funds Rate

Middle-left panel
Unemployment Rate

Middle-right panel
PCE Prices

Bottom panel
Summary

• We also considered an inflationary scenario:
  • Nominal income targeting stabilized both unemployment and inflation.
  • The inertial Taylor 1999 rule stabilized unemployment, but amplified the impact on inflation.
• Nominal income targeting also achieved improvements in inflation and unemployment in simulations of other models.
• Price-level targeting performed poorly in the FRB/US model and the small model, but well in the EDO (DSGE) model.

Exhibit 4
Questions for Committee Discussion of Monetary Policy Frameworks

1. Under flexible inflation targeting, the central bank pursues an explicit inflation objective, maintains the flexibility to stabilize economic activity, and seeks to communicate its forecasts and policy plans as clearly as possible. Would you view such a framework as consistent with the Federal Reserve's dual mandate of maximum employment and price stability? If so, do you think the Federal Reserve should enunciate such a framework? More generally, would it be helpful to formulate a consensus statement on the Committee's policy framework, perhaps using an approach similar to that of the exit strategy statement that the Committee developed earlier in the year?
2. The staff memo on alternative frameworks noted that, in principle, the Committee's best choice would be to announce and commit to the optimal policy path under commitment. Would it be helpful for the Committee to make such conditional commitments? If so, what are the most effective way(s) to communicate those conditional commitments, for example, by providing policy "thresholds" about the expected future course of policy or other options illustrated in Alternative A1 of the policy alternatives distributed on October 25?
3. The staff memo also described policy strategies that might broadly approximate commitment to the optimal policy path, including a price level target and a nominal income target. Taking into account their relative merits and pitfalls, under what circumstances, if any, would it be appropriate to pursue one of these strategies?
4. What steps, if any, should the Committee take to provide more information to the public about the expected future course of policy?

Appendix 2: Materials used by Mr. Sack

Material for
FOMC Presentation: Financial Market Developments and Desk Operations

Brian Sack
November 1, 2011

Class II FOMC - Restricted FR

Exhibit 1

Top-left panel
(1)

Title: Treasury Yields
Series: 2-year, 5-year, 10-year, and 30-year Treasury yields
Horizon: August 3, 2009 - October 28, 2011
Description: Treasury yields increased across the yield curve in the intermeeting period, with particularly large moves at the longer end of the curve.

Source: Bloomberg

Top-right panel
(2)

Title: Economic News Index
Series: Citigroup Economic Surprise Index
Horizon: August 3, 2009 - October 28, 2011
Description: An index tracking surprises in economic data turned positive for the first time in months, indicating that recent releases of economic data have been better than expected.

Source: Citigroup

Middle-left panel
(3)

Title: Changes in One-Year Forward Rates Over the Intermeeting Period
Series: 1-year forward Treasury rate changes for start years 0, 1, 2, 3, 5, 10, 20, and 30
Horizon: September 20, 2011 - October 28, 2011
Description: Forward rates at the front and middle of the Treasury yield curve increased, while those at the back end of the yield curve decreased, indicating a change in the shape of the yield curve.

Source: Federal Reserve Board of Governors

Middle-right panel
(4) Effects of September FOMC Decisions*

Bottom-left panel
(5)

Title: Probability Distribution of First Increase in Federal Funds Target Rate
Series: Average probabilities of first increase in federal funds target rate across different quarters, as assessed in September and November Federal Reserve Bank of New York Policy Surveys of primary dealers
Horizon: 2011:Q4 to 2014:Q1 or later
Description: Dealers pushed out their estimates for the first increase in the federal funds rate farther into the future.

Source: Federal Reserve Bank of New York Policy Survey

Bottom-right panel
(6)

Title: MBS Option-Adjusted Spread to Treasury
Series: FNMA current coupon option-adjusted spread to Treasury spliced with 3.5% coupon OAS to Treasury when current coupon rate is below 3.5%
Horizon: March 3, 2011 - October 28, 2011
Description: MBS spreads tightened in the intermeeting period, with a particularly pronounced tightening directly after the September FOMC and some subsequent intermeeting volatility.

Source: Barclays Capital

Exhibit 2

Top-left panel
(7)

Title: Equity Prices
Series: S&P 500 and EuroStoxx Index, indexed to 4/1/2010
Horizon: April 1, 2010 - October 28, 2011
Description: Domestic and European stocks increased sharply in the intermeeting period.

Source: Bloomberg

Top-right panel
(8)

Title: Corporate Bond Spreads to Treasury
Series: Bank of America-Merrill Lynch indices of high yield and investment grade bond spreads to Treasuries
Horizon: April 1, 2010 - October 28, 2011
Description: After initially widening, bond spreads fell fairly significantly in the latter part of the intermeeting period.

Source: Bank of America-Merrill Lynch

Middle-left panel
(9)

Title: Dollar Exchange Rates
Series: Dollar-euro exchange rate, Federal Reserve Board of Governors' trade-weighted dollar measure, and dollar-yen exchange rate
Horizon: April 1, 2010 - October 28, 2011
Description: The dollar depreciated against major currencies in the intermeeting period after exhibiting signs of strength early in the period. It remains particularly low against the yen.

Source: Bloomberg, Federal Reserve Board of Governors

Middle-right panel
(10)

Title: Euro Area Sovereign Debt Spreads
Series: Spanish, Italian, and French 10-year spreads to Germany
Horizon: April 1, 2010 - October 28, 2011
Description: Spanish, Italian, and French debt spreads to Germany remain elevated as compared to recent levels, with some notable volatility in recent weeks.

Source: Bloomberg

Bottom-left panel
(11)

Title: Dollar Funding Spreads to OIS
Series: Spreads of 3-month, 3-months forward Libor and spot Libor to OIS
Horizon: April 1, 2010 - October 28, 2011
Description: These measures of funding stress remain somewhat elevated, with the Libor-OIS spread rising slowly but steadily over the intermeeting period.

Source: Bloomberg

Bottom-right panel
(12)

Title: 5-Year Financial CDS Spreads
Series: Morgan Stanley, Goldman Sachs, and JP Morgan 5-year credit default swap spreads
Horizon: January 1, 2011 - October 28, 2011
Description: After spiking after the September FOMC, CDS spreads for Morgan Stanley and Goldman Sachs retraced to levels similar to those at the September FOMC. The cost of protection against losses on JP Morgan's debt, however, has not exhibited much change.

Source: Markit

Exhibit 3

Top-left panel
(13)

Title: Treasury Market Cost of Transacting
Series: Price impact of simultaneously buying and selling $500 million of benchmark 2-year and 10-year securities, calculated using five best bids and offers
Horizon: April 1, 2010 - October 28, 2011
Description: The Treasury market continues to function normally as exhibited by this metric.

Source: Brokertec, Federal Reserve Bank of New York

Top-right panel
(14)

Title: SOMA Purchases and Gross Issuance (Projections Through June 2012)
Series: Forecasted SOMA purchases and market issuance of 6-8 year, 8-10 year, 10-20 year, and 20-30 year Treasuries, 6-30 year TIPS, and MBS*
Horizon: October 2011 - June 2012
Description: The Maturity Extension Program is forecasted to absorb the equivalent of roughly half of new issuance of Treasuries up to 10 years, a significant amount of issuance in the 10-30 year sector, and very few TIPS. The MBS reinvestment program is forecasted to absorb roughly half of new issuance of MBS.

* Projections based on gross issuance of low-coupon securities.  Return to text

Source: Federal Reserve Bank of New York

Middle-left panel
(15)

Title: Probability of Additional Policy Actions
Series: November Dealer Survey additional policy action responses
Horizon: Current meeting to 1 year
Description: Respondents did not expect any further easing at the current meeting, but there was some expectation for further easing within the next year.

Policy actions shown in the chart are "Increase SOMA Duration," "Reduce IOER," "Provide SOMA Guidance," "Increase SOMA Size," and "Change Rate Guidance."

Source: Federal Reserve Bank of New York Policy Survey

Middle-right panel
(16)

Title: Expected SOMA Portfolio Holdings
Series: SOMA portfolio holdings (through 10/14/11), November Dealer Survey responses to the expected size of the portfolio (after 10/14/11)
Horizon: January 1, 2007 - December 31, 2016
Description: Some dealers are incorporating further asset purchases into their forecasts for the SOMA portfolio, although the median forecast is for no further expansion and a slow rolling down of the portfolio starting in 2014.

Source: Federal Reserve Bank of New York Policy Survey

Bottom-left panel
(17)

Title: Euro RRP Rate Offers on 10/28/2011
Series: Spot/next offers, excluding Goldman Sachs' offers, to the New York Fed's trading desk in reverse repurchase transactions on October 28, 2011
Horizon: October 28, 2011
Description: On the first day of differentiating between different types of European collateral in the Fed's reverse repurchase agreements for its euro portfolio, rate offers were as expected, with higher rates for potentially riskier collateral and relatively tight offer ranges across counterparties.

Source: Federal Reserve Bank of New York

Bottom-right panel
(18) Liability Structure of Financial Institutions*

Appendix 3: Materials used by Mr. Wilcox

Material for Forecast Summary

David Wilcox
November 1, 2011

Forecast Summary

Confidence Intervals Based on Tealbook Track Record

Top-left panel
Real GDP

The 70% confidence interval begins at about 1.34 in 2011:Q2, follows the contour of the October Tealbook curve, and ends at about [1.4,5.2].

Top-right panel
PCE Prices

The 70% confidence interval begins at about 3.30 in 2011:Q2, follows the contour of the October Tealbook curve, and ends at about [0.1,2.6].

Middle-left panel
Unemployment Rate

The 70% confidence interval begins at about 9.10 in 2011:Q2, follows the contour of the October Tealbook curve, and ends at about [7.05,9.25].

Middle-right panel
PCE Prices Excluding Food and Energy

The 70% confidence interval begins at about 2.26 in 2011:Q2, follows the contour of the October Tealbook curve, and ends at about [0.5,2.25].

Bottom-left panel
Change in Private Payroll Employment

Bottom-right panel
Consumer Sentiment

Appendix 4: Material distributed by Ms. Leonard

Material for Briefing on
FOMC Participants' Economic Projections

Deborah Leonard
November 1, 2011

Exhibit 2. Economic projections for 2011 (percent)

Note: For change in real GDP and inflation, the values for 2011, 2011:H1, and 2011:H2 are at annual rates in percent, measured in terms of Q4/Q4, Q2/Q4, and Q4/Q2, respectively.

Note: The changes in real GDP and inflation are measured Q4/Q4

Exhibit 4. Risks and uncertainty in economic projections

Appendix 5: Material distributed by Ms. Mester

Material for Briefing on
Trial-Run Policy Projections

Loretta J. Mester
November 1, 2011

Exhibit 1: Central tendencies and ranges

Top panel
Fed Funds Rate

Bottom panel
Fed Funds Rate

Exhibit 2. Distribution of federal funds rate projections

Histograms, five panels.

Exhibit 3. Distribution of participants' projections for year of first fed funds rate increase

Top panel

Bottom panel
Key factors underlying policy path:

For those favoring lift-off in 2014 or later:

• Slow growth and high unemployment + moderate inflation
• Large and persistent output and unemployment gaps
• Zero lower bound is limiting support of monetary policy

For those favoring lift-off in 2013 or earlier:

• Stronger inflation pressures despite elevated unemployment
• To forestall build-up of financial and structural imbalances
• To keep inflation expectations anchored

Exhibit 4. Projections aligned by year of lift-off

Panel A. Central tendencies and ranges in 2011, the year before lift-off, and the year of lift-off *

* Projections for the year before the first federal funds rate increase (i.e., for the year before lift-off) are not available for the participant projecting this increase will occur in 2016.  Return to text

Panel B. Scatter plots of projections in year of lift-off*

* Each dot represents the combination of projected values of the two variables for an individual participant.  Return to text

Appendix 6: Material distributed by Mr. English

Material for
FOMC Briefing on Monetary Policy Alternatives

Bill English
November 2, 2011

Table 1: Overview of Alternatives for the Nov. 2 FOMC Statement

September FOMC Statement

• 1. Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. 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 continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
• 3. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
• 4. To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.
• 5. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
• 6. The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.

[Note: In the November FOMC Statement Alternatives, emphasis (strike-through) indicates strike-through text, strong emphasis (bold) indicates bold red underlined text, and curly brackets { } indicate bold blue underlined text, respectively, in the original document.]

November FOMC Statement--Alternative A1

• 1. Information received since the Federal Open Market Committee met in August September indicates that economic growth remains slow strengthened somewhat in the third quarter, but the pickup was due predominantly to a reversal of the temporary factors that had weighed on growth earlier in the year. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increaseding at only a modest a somewhat faster pace in recent months despite some recovery in sales of motor vehicles as supply chain disruptions have eased. However, Business investment in equipment and software has continueds to expand, but investment in nonresidential structures is still weak and the housing sector remains depressed. Inflation appears to have has moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. 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 continues to expect some pickup in the a moderate pace of recovery economic growth over coming quarters but and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover However, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, The Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
• 3. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. To help support conditions in mortgage markets, The Committee will now is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition the Committee will maintain its existing policy and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
• 4. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent. and currently The Committee now anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013 mid-2014.
  
  OR
  
  
• 4′. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent. and currently The Committee now anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant this exceptionally low levels range for the federal funds rate at least through mid-2013 through the end of 2014. On the basis of currently available information, the Committee projects the unemployment rate to be about [ 6½ to 7 ] percent and the inflation rate (as measured by the price index for Personal Consumption Expenditures) to be around [ 1¾ to 2¼ ] percent at that time.
  
  OR
  
  
• 4″. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent. and currently The Committee anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant this exceptionally low levels range for the federal funds rate will be appropriate at least as long as the unemployment rate exceeds [ 7 ] percent, inflation (as measured by the price index for Personal Consumption Expenditures) is projected to be at or below [ 2½ ] percent in the medium term, and longer-term inflation expectations continue to be well anchored. On the basis of currently available information, the Committee expects these conditions to prevail through the end of 2014.
• 5. The Committee discussed the range of policy tools available will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.

November FOMC Statement--Alternative A2

• 1. Information received since the Federal Open Market Committee met in August September indicates that economic growth remains slow strengthened somewhat in the third quarter, but the pickup was due predominantly to a reversal of the temporary factors that had weighed on growth earlier in the year. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increaseding at only a modest a somewhat faster pace in recent months despite some recovery in sales of motor vehicles as supply chain disruptions have eased. However, Business investment in equipment and software has continueds to expand, but investment in nonresidential structures is still weak and the housing sector remains depressed. Inflation appears to have has moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. 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 continues to expects some pickup in the pace of recovery economic growth over coming quarters to be relatively modest but and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover However, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, The Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
• 3. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. In addition, the Committee intends to purchase a further [ $600 billion of longer-term Treasury securities by the end of September 2012 | $300 billion of longer-term Treasury securities and $300 billion of agency mortgage-backed securities by the end of June 2012 ]. This These programs should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. To help support conditions in mortgage markets, The Committee will now is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition the Committee will maintain its existing policy and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
• 4. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
• 5. The Committee discussed the range of policy tools available will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.

Note: If policymakers decide it is appropriate to reduce the remuneration rate on reserve balances, the Board of Governors would issue an accompanying statement that might read:

In a related action, the Board of Governors voted today to reduce the interest rate paid on required and excess reserve balances from 25 basis points to 10 basis points effective with the reserve maintenance period that begins on November 17, 2011.

November FOMC Statement--Alternative B

• 1. Information received since the Federal Open Market Committee met in August September indicates that economic growth remains slow strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increaseding at only a modest a somewhat faster pace in recent months despite some recovery in sales of motor vehicles as supply chain disruptions have eased. However, Business investment in equipment and software has continueds to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. 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 continues to expect some pickup in the a moderate pace of recovery economic growth over coming quarters but and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are { [ significant ] } downside risks to the economic outlook remain, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
• 3. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. To help support conditions in mortgage markets, The Committee will now is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition the Committee will maintain its existing policy and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
• 4. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least [ through mid-2013 | for the next six to seven quarters ].
• 5. The Committee discussed the range of policy tools available will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

November FOMC Statement--Alternative C

• 1. Information received since the Federal Open Market Committee met in August September indicates that economic growth remains slow of late has been somewhat stronger than the Committee had expected. Recent indicators point to continuing weakness in overall labor market conditions, and Although the unemployment rate remains elevated, household spending has been increaseding at only a modest a faster pace in recent months despite some recovery in sales of motor vehicles as supply chain disruptions have eased. However, Business investment in equipment and software continues to expand, and investment in nonresidential structures is still weak has increased. and The housing sector remains depressed. Inflation appears to have moderated only somewhat since earlier in the year, despite a decline in the as prices of energy and some commodities have declined from their peaks. 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 continues to expect some pickup in the a moderate pace of recovery growth over coming quarters but and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
• 3. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate In light of the recent improvement in the economic outlook, the Committee decided today to reduce by half the size of the program to extend the average maturity of its holdings of securities that it announced in September. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. In particular, the Committee intends to limit purchases and sales of securities under this program to $200 billion each and to complete these operations by the end of March 2012. To help support conditions in mortgage markets, The Committee will now is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition the Committee will maintain its existing policy and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
• 4. The Committee also decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently, now anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least [ through 2012 mid-2013 | for the next four quarters ].
• 5. The Committee discussed the range of policy tools available to promote a stronger economic recovery in the context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote its objectives of maximum employment and stable prices.

September 2011 FOMC Directive

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. The Committee also directs the Desk to maintain its existing policy of rolling over maturing Treasury securities into new issues and to reinvest principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

[Note: In the November 2011 FOMC Directive Alternatives, emphasis (strike-through) indicates strike-through text in the original document, and strong emphasis (bold) indicates bold red underlined text in the original document.]

November 2011 FOMC Directive -- Alternative A1

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. The Committee also directs the Desk to maintain its existing policyies of rolling over maturing Treasury securities into new issues and to of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

November 2011 FOMC Directive -- Alternative A2

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. The Committee also directs the Desk to execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $3.3 trillion by the end of September 2012. The Committee also directs the Desk to maintain its existing policyies of rolling over maturing Treasury securities into new issues and to of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

OR

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. The Committee also directs the Desk to execute purchases of longer-term Treasury securities and of agency mortgage-backed securities of approximately equal face amounts in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $3.3 trillion by the end of June 2012. The Committee also directs the Desk to maintain its existing policyies of rolling over maturing Treasury securities into new issues and to of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

November 2011 FOMC Directive -- Alternative B

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. The Committee also directs the Desk to maintain its existing policyies of rolling over maturing Treasury securities into new issues and to of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

November 2011 FOMC Directive -- Alternative C

The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to modify the maturity extension program it began in September so as to purchase, by the end of MarchJune 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $200$400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $200$400 billion. The Committee also directs the Desk to maintain its existing policyies of rolling over maturing Treasury securities into new issues and to of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.4$2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability.

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