january 27–28, 2009 authorized for public release 218 … · appendix 1: materials used by ms....
TRANSCRIPT
Appendix 1: Materials used by Ms. Mosser and Mr. Hilton
January 27–28, 2009 218 of 267Authorized for Public Release
(1) U.S. Libor–OIS Spreads July 1, 2007 – January 23, 2009
Source: Bloomberg
Class II FOMC – Restricted FR
0
50
100
150
200
250
300
350
400
07/01/07 09/01/07 11/01/07 01/01/08 03/01/08 05/01/08 07/01/08 09/01/08 11/01/08 01/01/09
BPS
0
50
100
150
200
250
300
350
400BPS
1-Week1-Month3-Month
Sept.14: Lehman Brothers Holdings files for bankruptcy
Oct.13: Euro Area AnnouncementOct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and
further details of Federal Reserve CPFF Program Announced
Page 1 of 16
(2) Three-Month Commercial Paper Rates August 1, 2008 – January 23, 2009
Source: Federal Reserve Board
0
1
2
3
4
5
6
7
8
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
Percent
0
1
2
3
4
5
6
7
8Percent
AA-Rated Non-Financial CPAA-Rated Financial CPAA-Rated ABCPA2/P2 Non-Financial CP
Oct.7: CPFF announced (effective Oct.27)
Sept.19: AMLF announced
Sept.14: Lehman Brothers Holdings files for bankruptcy
Oct.21: MMIFF announced
-100
-50
0
50
100
150
200
250
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
BPS
5.00
5.25
5.50
5.75
6.00
6.25
6.50
6.75Percent
Fannie 5Y Debt Spread to TSY Yield (LHS)Mortgage OAS to Treasury (LHS)30Y Fixed Conforming Mortgage Rate (RHS)
Sept.14: Lehman Brothers Holdings files for bankruptcySept.7: Fannie Mae and Freddie Mac enter conservatorship
Nov.25: Agency Coupon and Agency-MBS Purchases Announced
Jan.5: First Agency-MBS Purchase
Dec.30: Agency-MBS FAQ Released
(3) Mortgages and AgenciesAugust 1, 2008 – January 23, 2009
Source: Bloomberg, Lehman Brothers/Barclays
January 27–28, 2009 219 of 267Authorized for Public Release
Class II FOMC – Restricted FR
Source: Merrill Lynch/Bank of America
0
200
400
600
800
1000
08/01/07 10/01/07 12/01/07 02/01/08 04/01/08 06/01/08 08/01/08 10/01/08 12/01/08
BPS
0
500
1000
1500
2000
2500BPS
Investment Grade (LHS)
High Yield (RHS)
(4) Corporate Debt Cash Spreads Narrow RecentlyAugust 1, 2007 – January 23, 2009
(5) Monthly Investment Grade Bond IssuanceJanuary 2008 – January 2009
0
20
40
60
80
100
120
140
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 (2wks)
$ Billions
0
20
40
60
80
100
120
140$ Billions
GuaranteedNot Guaranteed
Source: JPMorgan Chase
Page 2 of 16
January 27–28, 2009 220 of 267Authorized for Public Release
Source: JPMorgan Chase
(6) Asset-Backed Security Spreads Narrow After Year EndAugust 1, 2008 – January 23, 2009
Class II FOMC – Restricted FR
(7) Commercial Mortgage-Backed and Leveraged Loan Prices Deteriorate August 1, 2008 – January 23, 2009
Source: Lehman Brothers/Barclays, JPMorgan Chase
556065707580859095
100
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
Dollar
556065707580859095100
Dollar
CMBX Series 2 (2006)CMBX Series 4 (2007)LCDX
0
100
200
300
400
500
600
700
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
BPS
0
100
200
300
400
500
600
700BPS
3-Year Auto (AAA-Rated)5-Year Credit Card (AAA-Rated)3-Year FFELP Student Loan (AAA-Rated)
Sept.14: Lehman Brothers Holdings files for bankruptcy
Dec.19: TALF announced
Page 3 of 16
January 27–28, 2009 221 of 267Authorized for Public Release
Class II FOMC – Restricted FR
(8) Average Daily Bid-Ask Spread: Euro-Dollar FX RateJanuary 1, 2007 – January 22, 2009
Source: ICAP FX
0.000
0.005
0.010
0.015
0.020
0.025
0.030
01/01/07 04/01/07 07/01/07 10/01/07 01/01/08 04/01/08 07/01/08 10/01/08 01/01/09
Percent
0.000
0.005
0.010
0.015
0.020
0.025
0.030Percent
10-Day Moving Average
Average Percent
Source: Broker Tec
(9) Trade Quote Sizes in the Treasury Market ShrinkAverage Daily, 2008 - 2009
0
50
100
150
200
250
2-year 5-year 10-year 30-year
$ Millions
0
50
100
150
200
250$ Millions
2008
Dec. 2008
Jan. 2009
Page 4 of 16
January 27–28, 2009 222 of 267Authorized for Public Release
Class II FOMC – Restricted FR(10) Average Absolute Price Error between Treasury Yields and FRB Model
January 1, 2007 – January 21, 2009
0
5
10
15
20
25
01/01/07 05/01/07 09/01/07 01/01/08 05/01/08 09/01/08 01/01/09
BPS
0
5
10
15
20
25BPS
Source: Federal Reserve Board*Calculated from securities with two to ten years until maturity, excluding on-the-run and first off-the-run securities.
-800
-600
-400
-200
0
200
01/01/08 03/01/08 05/01/08 07/01/08 09/01/08 11/01/08 01/01/09
Percent
-800
-600
-400
-200
0
200Percent
Investment Grade
High Yield
Sept.14: Lehman Brothers Holdings files for bankruptcy
(11) Corporate CDS Bond Basis January 1, 2007 – January 23, 2009
Source: JPMorgan Chase(12) Hedge Fund Returns Decline* January 1, 1998 – December 30, 2008
Source: CS/Tremont, Bloomberg, Lehman Brothers/Barclays
-30
-20
-10
0
10
20
30
40
01/01/98 01/01/00 01/01/02 01/01/04 01/01/06 01/01/08
Percent
-30
-20
-10
0
10
20
30
40Percent
Sept.14: Lehman Brothers Holdings files for bankruptcy
*12-Month rolling returns
Page 5 of 16
January 27–28, 2009 223 of 267Authorized for Public Release
Class II FOMC – Restricted FR
Source: Bloomberg
(13) Bank Earnings Disappoint Expectations Q3 2008 – Q4 2008
*U.K. banks report semi-annually**Expected to report Q4 earning on 1/28/09
Source: Goldman Sachs
(14) Bank Capital RatiosQ3 2008
3.4%
11.5%
6.1%
11.1%
0
3
6
9
12
15Percent
0
3
6
9
12
15Percent
8 Large Banks
14 Regional Banks
Tier 1 Ratio Tangible Common Equity Ratio
Earnings Estimate ($bln)
Actual Earnings ($bln)
Tangible Common Equity
to Assets
Tier 1 Capital Ratio
U.S. Bank Holding CompaniesJPMorgan Chase 0.4 0.7 3.8 8.9Citigroup -5.0 -8.3 1.8 8.2Bank of America 1.6 -1.8 2.6 7.6Merrill Lynch -1.9 -15.3 8.7Wells Fargo** 1.6 5.4 8.6State Street 0.0 0.1 2.4 16.0Bank of New York-Mellon 0.7 0.1 2.1 9.3Goldman Sachs -1.7 -2.1 11.6Morgan Stanley 0.5 -2.3 12.7
Foreign Banks (in local currency)UBS -3.1 1.6 10.8Credit Suisse -3.0 2.0 10.4Deutsche Bank -4.4 -4.8 1.2 7.6HSBC 4.2 3.4 8.2Barclays* 1.1 1.0 7.9RBS* -4.2 2.7BNP Paribas 0.7 2.1Societe Generale 0.6 2.7 8.2
Q4 Earnings Q3 Capital Ratios
Page 6 of 16
January 27–28, 2009 224 of 267Authorized for Public Release
Source: Bloomberg
0
20
40
60
80
100
120
140
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
Index to 100 on 8/1/08
0
20
40
60
80
100
120
140Index to 100 on 8/1/08
Morgan StanleyGoldman SachsS&P 500 Sept.22: Goldman and Morgan Stanley become bank holding companies
Sept.14: Lehman Brothers Holdings files for bankruptcy
Source: Bloomberg
(16) Commercial Bank Equity PricesAugust 1, 2008 – January 23, 2009
0
20
40
60
80
100
120
140
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
Index to 100 on 8/1/08
0
20
40
60
80
100
120
140Index to 100 on 8/1/08
JPMorgan ChaseCitigroupBank of AmericaWells FargoS&P 500 Sept.14: Lehman Brothers Holdings files for bankruptcy
(15) Former Investment Bank Equity PricesAugust 1, 2008 – January 23, 2009
Class II FOMC – Restricted FR
(17) European Bank Equity PricesAugust 1, 2008 – January 23, 2009
0
20
40
60
80
100
120
140
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
Index to 100 on 8/1/08
0
20
40
60
80
100
120
140Index to 100 on 8/1/08
BarclaysRBSHSBCDeutscheSociete GeneraleUBSCredit Suisse Sept.14: Lehman Brothers Holdings files for bankruptcy
Source: Bloomberg
Page 7 of 16
January 27–28, 2009 225 of 267Authorized for Public Release
Class II FOMC – Restricted FR
(18) Former Investment Bank CDS Spreads August 1, 2008 – January 23, 2009
Source: Markit
0200400600800
10001200140016001800
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
BPS
020040060080010001200140016001800
BPS
Morgan Stanley
Goldman Sachs
Sept.22: Goldman and Morgan Stanley become bank holding companies
Sept.14: Lehman BrothersHoldings files for bankruptcy
Oct.13: Euro Area AnnouncementOct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and further details of Federal Reserve CPFF Program Announced
(19) Commercial Bank CDS SpreadsAugust 1, 2008 – January 23, 2009
Source: Markit
0
100
200
300
400
500
600
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
BPS
0
100
200
300
400
500
600BPS
JPMorgan ChaseCitigroupBank of AmericaWells Fargo
Sept.14: Lehman Brothers Holdings files for bankruptcy & Bank of America announced purchse of Merrill Lynch
Nov.23: US government provides a package of gurantees, liquidity access, and capital to Citigroup
Oct.13: Euro Area AnnouncementOct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and further details of Federal Reserve CPFF Program Announced
(20) European Bank CDS SpreadsAugust 1, 2008 – January 23, 2009
Source: Bloomberg
050
100150200250300350400450
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
BPS
050100150200250300350400450BPS
BarclaysRBSHSBCDeutscheSociete GeneraleUBSCSFB
Sept.14: Lehman Brothers Holdings files for bankruptcy & Bank of America announced purchse of Merrill Lynch
Nov.23: US government provides a package of gurantees, liquidity access, and capital to Citigroup
Oct.13: Euro Area AnnouncementOct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee, and further details of Federal Reserve CPFF Program Announced
Page 8 of 16
January 27–28, 2009 226 of 267Authorized for Public Release
Class II FOMC – Restricted FR
Source: Bloomberg
(21) Sovereign CDS Spreads WidenAugust 1, 2008 – January 23, 2009
050
100150200250300350400450
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
BPS
050100150200250300350400450BPS
USUKGermanySpainJapanIrelandAustraliaKorea
Source: Bloomberg
(22) Treasury Yield Curve Steepens ModestlyAugust 1, 2007 – January 23, 2009
0.51.01.52.02.53.03.54.04.55.05.5
08/01/07 10/01/07 12/01/07 02/01/08 04/01/08 06/01/08 08/01/08 10/01/08 12/01/08
Percent
0.51.01.52.02.53.03.54.04.55.05.5
Percent
2-Year5-Year10-Year30-Year
(23) Distribution of Expected Policy Target Rate Among Primary Dealers Prior to January 28 FOMC Meeting
Source: Dealer Policy Survey
-1.0-0.50.00.51.01.52.02.53.03.54.0
Percent
Survey Response -size indicates freq
January Average Forecast
Market Rates as of 1/20
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010
Page 9 of 16
January 27–28, 2009 227 of 267Authorized for Public Release
Source: Federal Reserve Bank of New York
(24) Federal Reserve Balance Sheet Assets August 2007 – January 2009
Class II FOMC – Restricted FR
0250500750
1000125015001750200022502500
8-Aug-07 12-Sep-08 22-Oct-08 17-Dec-08 31-Dec-08 23-Jan-09
$ Billions
02505007501000125015001750200022502500
$ Billions
All Other LendingPCF+PDCFAMLFCPFFFX SwapsTAFOutright Agency HoldingsSingle Tranche RepoConventional RPsOutright Treasury HoldingsAutofactors
(25) Market Rates Corresponding to Liquidity Facilities July 1, 2008 – January 23, 2009
0.000.501.001.502.002.503.003.504.004.505.00
07/01/08 09/01/08 11/01/08 01/01/09
Percent
0.000.501.001.502.002.503.003.504.004.505.00
Percent
1M GC Treasury Repo1M Agency-MBS Repo1M USD Libor3M USD Libor3M Financial CP
Sept.14: Lehman Brothers Holdingsfiles for bankruptcy
Year End
Source: Federal Reserve Bank of New York
Page 10 of 16
January 27–28, 2009 228 of 267Authorized for Public Release
(26) TSLF Loans Outstanding March 28, 2008 – January 23, 2009
0255075
100125150175200225250
03/28/08 05/28/08 07/28/08 09/28/08 11/28/08
$ Billions
0255075100125150175200225250
$ Billions
TOP (Schedule 2)Schedule 2Schedule 1
Year End
Source: Federal Reserve Bank of New York(27) Demand at TSLF Auctions
March 27, 2008 – January 22, 2009
0.00.51.01.52.02.53.03.54.04.5
3/28/08 5/9/08 6/20/08 8/1/08 9/12/08 10/3/08 10/31/08 11/28/08 12/26/08 1/23/09
Percent
0102030405060708090
$ Billions
Sch1: Auction Size (RHS)Sch1: Amount Awarded (RHS)Sch2: Auction Size (RHS)Sch2: Amount Awarded (RHS)Sch1: Stop-Out Rate (LHS)Sch2: Stop-Out Rate (LHS)
Source: Federal Reserve Bank of New York
Class II FOMC – Restricted FR
(28) Total Outstanding FX Swap Draw-Downs Decline December 1, 2007 – January 23, 2009
0
100
200
300
400
500
600
12/01/07 02/01/08 04/01/08 06/01/08 08/01/08 10/01/08 12/01/08
$ Billions
0
100
200
300
400
500
600$ Billions
Norges Bank Danmark NBBOK Riksbank RBA BOJ BOE SNB ECB
Year End
Source: Federal Reserve Bank of New York
Page 11 of 16
January 27–28, 2009 229 of 267Authorized for Public Release
(29) Term Auction Facility Loans Outstanding December 20, 2007 – January 23, 2009
050
100150200250300350400450500
12/20/07 02/20/08 04/20/08 06/20/08 08/20/08 10/20/08 12/20/08
$ Billions
050100150200250300350400450500
$ Billions
Forward84-Day28-Day
Year End
Source: Federal Reserve Bank of New York(30) Demand at TAF Auctions
December 20, 2007 – January 15, 2009
0
25
50
75
100
125
150
175
200
12/20/07 2/28/08 5/8/08 7/17/08 9/11/08 11/6/08 12/23/08
BPS
0
25
50
75
100
125
150
175
200$ Billions
Auction Size (RHS)Amount Awarded (RHS)Stop-Out Rate Spread to Minimum Bid Rate (LHS)
84-Day Term
Forward Settling Auctions
Source: Federal Reserve Board
Class II FOMC – Restricted FR
0255075
100125150175200225250
01/01/08 02/12/08 03/25/08 05/06/08 06/17/08 07/29/08 09/09/08 10/21/08 12/02/08 01/13/09
$ Billions
0255075100125150175200225250
$ Billions
PDCF
PCFSept.14: Lehman Brothers Holdings files for bankruptcy
Year End
(31) PCF and PDCF BorrowingJanuary 1, 2008 – January 23, 2009
Source: Federal Reserve Bank of New York
Page 12 of 16
January 27–28, 2009 230 of 267Authorized for Public Release
Source: Federal Reserve Bank of New York
Class II FOMC – Restricted FR
(33) AMLF Loans Outstanding September 22, 2008 – January 23, 2009
0
25
50
75
100
125
150
175
09/22/08 10/07/08 10/22/08 11/06/08 11/21/08 12/06/08 12/21/08 01/05/09 01/20/09
$ Billions
0
25
50
75
100
125
150
175$ Billions
Source: Federal Reserve Bank of New York
(32) Amount of CPFF Loans Outstanding October 27, 2008 – January 23, 2009
0
50
100
150
200
250
300
350
400
10/27/08 11/11/08 11/26/08 12/11/08 12/26/08 01/10/09
$ Billions
0
50
100
150
200
250
300
350
400$ Billions
CPFDIC Guaranteed CPABCP
(34) Assets in Prime Money Market Funds August 1, 2008 – January 23, 2009
Source: iMoneyNet
1400
1600
1800
2000
2200
2400
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
$Billions
0
200
400
600
800
1000$Billions
Prime (LHS)Treasury Only (RHS)Treasury & Repo (RHS)Treasury & Agency (RHS)
Oct.7: CPFF announced (effective Oct.27)
Sept.19: AMLF announced
Sept.14: Lehman Brothers Holdings files for bankruptcySept.16: Reserve Fund breaks the buck
Oct.21: MMIFF
Jan.5: MMIFF eligibility expanded
Page 13 of 16
January 27–28, 2009 231 of 267Authorized for Public Release
0
10
20
30
40
50
60
5-Jan 6-Jan 7-Jan 8-Jan 9-Jan 12-Jan 13-Jan 14-Jan 15-Jan 16-Jan 20-Jan 21-Jan 22-Jan 23-Jan
$ Billions
0
10
20
30
40
50
60$ Billions
Cummulative Amount PurchasedAgency-MBS Purchase Size
Source: Federal Reserve Bank of New York
(35) Purchases of Agency-MBS January 5, 2009 – January 23, 2009
0
5
10
15
20
25
5-Dec-08 12-Dec-09 18-Dec-08 19-Dec-08 23-Dec-08 9-Jan-09 13-Jan-09 22-Jan-09
$ Billions
0
5
10
15
20
25$ Billions
Cumulative Amount PurchasedAgency Coupon Purchase Size
(37) Purchases of Agency Coupon Debt December 5, 2008 – January 22, 2009
Source: Federal Reserve Bank of New York
0
100
200
300
400
500
01/01/08 03/01/08 05/01/08 07/01/08 09/01/08 11/01/08 01/01/09
Index=100 on 1/1/08
0
100
200
300
400
500Index=100 on 1/1/08
Mortgage Application IndexMortgage Refinance Application Index
Nov.25: Agency Coupon and Agency-MBS Purchases Announced
Jan.5: First Agency-MBS Purchase
Dec.30: Agency-MBS FAQ Released
(36) Mortgage Refinance Applications January 1, 2008 – January 16, 2009
Source: Bloomberg
Class II FOMC – Restricted FR Page 14 of 16
January 27–28, 2009 232 of 267Authorized for Public Release
Source: Bloomberg
(38) Three-Month Libor and Expectations for Three-Month Libor Decline July 1, 2007 – January 23, 2009
Class II FOMC – Restricted FR
0
1
2
3
4
5
6
07/01/07 09/01/07 11/01/07 01/01/08 03/01/08 05/01/08 07/01/08 09/01/08 11/01/08 01/01/09
Percent
0
1
2
3
4
5
6Percent
3-Month U.S. Libor
3-Month Forward 3-Month Libor
Sept.14: Lehman Brothers Holdings files for bankruptcy
Oct.13: Euro Area AnnouncementOct.14: Treasury Capital Purchase Program, FDIC Debt Guarantee,
and further details of Federal Reserve CPFF Program Announced
APPENDIX: Reference Exhibits
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
01/01/08 04/01/08 07/01/08 10/01/08 01/01/09
Percent
0
30
60
90
120
150
180
210BPS
Conforming Mortgage Rates (LHS)Jumbo Mortgage Rates (LHS)Spread (RHS)
Sept.14: Lehman Brothers Holdings files for bankruptcySept.7: Fannie Mae and Freddie Mac enter conservatorship
Nov.25: Agency Coupon and Agency-MBS Purchases Announced
Jan.5: First Agency-MBS Purchase
Dec.30: Agency-MBS FAQ Released
(39) Spread between Jumbo and Conforming Mortgage Rates Remains WideJanuary 1, 2008 – January 23, 2009
Source: Bloomberg
0.75
1.00
1.25
1.50
1.75
2.00
2.25
08/01/08 09/01/08 10/01/08 11/01/08 12/01/08 01/01/09
Ratio
0.75
1.00
1.25
1.50
1.75
2.00
2.25Ratio
10-Year
30-Year
(40) Ten- and Thirty- Year AAA–Rated Municipal Debt Yields Decline* August 1, 2008 – January 23, 2009
Source: Bloomberg
Page 15 of 16
January 27–28, 2009 233 of 267Authorized for Public Release
Class II FOMC – Restricted FR
(41) Distribution of Expected Policy Target Rate Among Primary Dealers Prior to December 16 FOMC Meeting
Source: Dealer Policy Survey Q1 2009 Q2 2009 Q3 2009 Q4 2009
-0.25
0.00
0.25
0.50
0.75
1.00
1.25Percent
Survey Response -size indicates freq
December Average Forecast
Market Rates as of 12/08
Page 16 of 16
January 27–28, 2009 234 of 267Authorized for Public Release
Appendix 2: Materials used by Mr. Sichel, Ms. Dynan, and Mr. Reeve
January 27–28, 2009 235 of 267Authorized for Public Release
CLASS II FOMC - Restricted (FR)
Material for
Staff Presentation on the
Economic Outlook
January 27, 2009
January 27–28, 2009 236 of 267Authorized for Public Release
Class II FOMC - Restricted (FR) Exhibit 10
Global Financial Markets
30
40
50
60
70
80
90
100 110
Jul Sep Nov Jan
Equity PricesIndex, Jun. 3, 2008 = 100
Weekly
Emergingmarkets
UnitedKingdom
Euroarea
Japan
Dec.FOMC
2008
30
40
50
60
70
80
90
100 110
Jul Sep Nov Jan
Bank Equity PricesIndex, Jun. 3, 2008 = 100
Weekly
Emergingmarkets
UnitedKingdom
Euroarea
Japan
Dec.FOMC
2008
0
100
200
300
400
500
600
700
Jul Sep Nov Jan
Outstanding Central Bank Swap DrawsBillions of dollars
Weekly
3-monthOther
2008
0
50
100
150
200
250
300
350
400
Jul Sep Nov Jan
3-Month LIBOR-OIS SpreadsBasis points
Daily Dec.FOMCDollar
Sterling
Euro
2008
70
75
80
85
90
2006 2007 2008 2009 2010
Broad Real DollarIndex, Feb. 2002 = 100
Monthly
Dec. GB
95
100
105
110
115
120
125
Jul Sep Nov Jan
U.S. Dollar Exchange RatesIndex, Jun. 3, 2008 = 100
Daily Dec.FOMC
2008
OITP index*
Majorcurrencies
index
*Other important trading partners.
January 27–28, 2009 246 of 267Authorized for Public Release
Class II FOMC - Restricted (FR) Exhibit 11
Foreign Growth Outlook
-30
-20
-10
0
10
20
2007 2008
Japan12-month percent change
Real household spending
Real exports
Nov.
Dec.
20
25
30
35
40
45
50
55
60
2007 2008
Global PMIsDiffusion index
New exportorders
Manufacturingoutput
Dec.
Source: Haver Analytics.
0
5
10
15
20
2007 2008
China12-month percent change
Retail salesvolume
Industrial productionNov.
Dec.
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
2007 2008
Euro Area12-month percent change
Retail salesvolume
Industrial production
Nov.
Nov.
Real GDP* Percent change, annual rate**
2007 2008 2009p 2010p
Q1-Q3 Q4e Q1 Q2 H2
1. Total 4.2 1.4 -3.8 -2.8 -0.8 1.5 2.82. December Greenbook 4.2 1.4 -1.6 -1.2 0.1 1.5 2.8
3. Advanced Foreign Economies 2.6 0.2 -2.8 -3.4 -1.9 0.6 1.94. Japan 2.0 -1.1 -5.2 -3.7 -1.5 0.0 1.15. Euro area 2.1 0.4 -2.0 -2.0 -1.0 0.7 1.96. United Kingdom*** 3.0 -0.4 -5.9 -4.0 -2.2 0.3 1.77. Canada 2.8 0.4 -2.4 -4.4 -2.8 0.7 2.1
8. Emerging Market Economies 6.4 3.0 -5.0 -1.9 0.8 2.6 4.19. Emerging Asia 7.8 4.0 -6.5 -0.8 1.8 4.3 5.710. China 11.4 9.1 0.3 4.0 6.5 7.5 8.811. Latin America 4.8 1.8 -4.1 -3.5 -0.4 0.9 2.512. Mexico 4.2 0.9 -5.0 -4.0 -1.0 0.4 2.2
*GDP aggregates weighted by shares of U.S. merchandise exports.**Change from final quarter of preceding period to final quarter of period indicated.***Updated since January Greenbook.
January 27–28, 2009 247 of 267Authorized for Public Release
Class II FOMC - Restricted (FR) Exhibit 12
U.S. Trade
70
90
110
130
150
170
190
2002 2003 2004 2005 2006 2007 20080
20
40
60
80
100
120
Nominal TradeBillions of dollarsBillions of dollars
Monthly
Q1p
Non-oil imports
Oil imports
Exports
5
10
15
20
25
2002 2003 2004 2005 2006 2007 2008
Automotive TradeBillions of dollars
Monthly
Exports
Imports
Q1p
-100
-80
-60
-40
-20
0
20
2002 2003 2004 2005 2006 2007 2008
Trade BalanceBillions of dollars
Monthly
Q1pEx. oil imports
Total
0
2
4
6
8
10
2002 2003 2004 2005 2006 2007 2008
Aircraft ExportsBillions of dollars
MonthlyQ1p
Trade in Real Goods and Services
2007 2008 2009p 2010p
Q1-Q3 Q4e Q1 Q2 H2
Growth Rates (percent, annual rate*)
1. Exports 8.9 6.7 -19.9 -5.1 -2.7 -0.1 2.4
2. Imports 1.1 -3.9 -15.4 -11.7 -1.9 5.8 5.4
Contribution to Real GDP Growth (percentage points, annual rate*)
3. Net Exports 0.8 1.6 -0.1 1.2 -0.1 -0.8 -0.5
4. December Greenbook 0.8 1.6 0.4 0.9 0.1 -0.5 -0.4
*Change from final quarter of preceding period to final quarter of period indicated.
January 27–28, 2009 248 of 267Authorized for Public Release
Class II FOMC - Restricted (FR) Exhibit 13
Cyclical Comparisons
-4
-2
0
2
4
6
8
10
1975 1980 1985 1990 1995 2000 2005 2010
Real GDPPercent change, Q4/Q4
United States
Foreign*
NBERpeak
*Weighted by shares of U.S. merchandise exports.
70
80
90
100
110
120
130
140
1975 1980 1985 1990 1995 2000 2005 2010
Broad Real DollarIndex, historical average = 100
NBERpeak
Note: Gray shading represents U.S. recessions as dated by the NBER. Blue shading represents the forecast period.
-3
-2
-1
0
1
2
3
1975 1980 1985 1990 1995 2000 2005 2010
Contribution of Trade to U.S. GDP GrowthPercentage points, Q4/Q4
ExportsImportsNet exports
NBERpeak
January 27–28, 2009 249 of 267Authorized for Public Release
Class II FOMC - Restricted (FR) Exhibit 14
Commodity Prices
20
40
60
80
100
120
140
160
2007 200820
40
60
80
100
120
140
160
Recent Price DevelopmentsDollars per barrelIndex, Jan. 3, 2007 = 100
Daily
WTI oil
CRB nonfuel
Peak oil price
-50
-25
0
25
50
2007 2008
U.S. Crude Oil InventoriesMillions of barrels
Weekly
Deviation fromhistorical average
Peak oil price
-100
-50
0
50
100
150
Jan Apr Jul Oct Jan200
250
300
350
400
450
Financial Investors’ Net Oil Futures PositionsThousands of contractsThousands of contracts
Noncommercialtraders
Indexinvestors
2008
Peak oil price
Source: CFTC.
24
26
28
30
32
2007 200844
46
48
50
52
Oil ProductionMillions of barrels per dayMillions of barrels per day
OPEC*
Non-OPEC
JanuaryOPEC target
Peak oil price
*Excluding Indonesia and Iraq.
-6
-4
-2
0
2
4
6
2007 2008
Oil DemandFour-quarter percent change
World
Advancedeconomies
Emergingeconomies
Peak oil price
20
40
60
80
100
120
140
160
2007 2008 2009 201020
40
60
80
100
120
140
160
Commodity Price OutlookDollars per barrelIndex, Jan. 2007 = 100
Oil importprice
Nonfuelindex
January 27–28, 2009 250 of 267Authorized for Public Release
Class II FOMC - Restricted (FR) Exhibit 15 (Last Exhibit)
Prices
-4
-2
0
2
4
6
8
2007 2008 2009 2010
Consumer Price IndexesFour-quarter percent change
Canada
UnitedKingdomEuro
area
Japan
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2006 2007 2008
CPI Excluding Food and Energy*12-month percent change
Euroarea
UnitedKingdom
Canada
Japan Nov.
Dec.
Dec.
Dec.
*Staff estimates.
-4
-2
0
2
4
6
8
2007 2008 2009 2010
Consumer Price IndexesFour-quarter percent change
Emerging Asia
Latin America
-1
0
1
2
3
4
5
6
2007 2008 2009 2010
Policy RatesPercent
United Kingdom
Euro area
Canada
Japan
0
2
4
6
8
2006 2007 2008
CPI Excluding Food*12-month percent change
EmergingAsia
LatinAmerica
Dec.
Nov.
*Staff estimates.
0
5
10
15
2007 2008 2009 2010
Policy RatesPercent
Korea
Mexico
China
Brazil
January 27–28, 2009 251 of 267Authorized for Public Release
Appendix 3: Materials used by Mr. Madigan
January 27–28, 2009 252 of 267Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Material for Briefing on FOMC Participants’ Economic Projections
Brian Madigan January 27, 2009
January 27–28, 2009 253 of 267Authorized for Public Release
2
1
+_0
1
2
3
4
5
Percent
Figure 1. Central tendencies and ranges of economic projections, 2009–11 and over the longer run
Change in real GDP
Range of projections
Actual
2004 2005 2006 2007 2008 2009 2010 2011 LongerRun
Central tendency of projections
5
6
7
8
9
Percent
Unemployment rate
2004 2005 2006 2007 2008 2009 2010 2011 LongerRun
+_0
1
2
3
Percent
PCE inflation
2004 2005 2006 2007 2008 2009 2010 2011 LongerRun
+_0
1
2
3
Percent
Core PCE inflation
2004 2005 2006 2007 2008 2009 2010 2011
NOTE: Definitions of variables are in the notes to table 1. The data for the actual values of the variables are annual.
Exhibit 1: Economic Projections of FOMC Participants for 2009 to 2011 and over the Longer Run
January 27–28, 2009 254 of 267Authorized for Public Release
Exhibit 2: Economic Projections of FOMC Participants for 2009 to 2011 and over the Longer Run
Real GDP Growth
2009 2010 2011 Longer-Run
Central Tendency -1.3 to -0.5 2.5 to 3.3 3.8 to 5.0 2.5 to 2.7 October projections -0.2 to 1.1 2.3 to 3.2 2.8 to 3.6 2.5 to 2.7
Range -2.5 to 0.2 1.5 to 4.5 2.3 to 5.5 2.4 to 3.0 October projections -1.0 to 1.8 1.0 to 4.5 2.0 to 5.0 2.0 to 2.9
Memo: Greenbook -0.8 2.6 4.9 2.7 October Greenbook -0.1 2.3 4.5 2.7
Unemployment Rate
2009 2010 2011 Longer-Run
Central Tendency 8.5 to 8.8 8.0 to 8.3 6.7 to 7.5 4.8 to 5.0 October projections 7.1 to 7.6 6.5 to 7.3 5.5 to 6.6 4.8 to 5.0
Range 8.0 to 9.2 7.0 to 9.2 5.5 to 8.0 4.5 to 5.5 October projections 6.6 to 8.0 5.5 to 8.0 4.9 to 7.3 4.5 to 5.8
Memo: Greenbook 8.4 8.1 6.7 4.8 October Greenbook 7.2 7.2 6.4 4.8
PCE Inflation
2009 2010 2011 Longer-Run
Central Tendency 0.3 to 1.0 1.0 to 1.5 0.9 to 1.7 1.7 to 2.0 October projections 1.3 to 2.0 1.4 to 1.8 1.4 to 1.7 1.7 to 1.8
Range -0.5 to 1.5 0.7 to 1.8 0.2 to 2.1 1.5 to 2.0 October projections 1.0 to 2.2 1.1 to 1.9 0.8 to 1.8 1.5 to 2.0
Memo: Greenbook 0.6 1.1 0.8 ----- October Greenbook 1.4 1.4 1.1 -----
Core PCE Inflation
2009 2010 2011
Central Tendency 0.9 to 1.1 0.8 to 1.5 0.7 to 1.5 October projections 1.5 to 2.0 1.3 to 1.8 1.3 to 1.7
Range 0.6 to 1.5 0.4 to 1.7 0.0 to 1.8 October projections 1.3 to 2.1 1.1 to 1.9 0.8 to 1.8
Memo: Greenbook 1.0 0.8 0.6 October Greenbook 1.5 1.3 1.1
January 27–28, 2009 255 of 267Authorized for Public Release
Exhibit 3: Risks and Uncertainty in Economic Projections
Uncertainty about GDP Growth Risks to GDP Growth
0
4
8
12
16
Lower Similar Higher
OctoberJanuary
0
4
8
12
16
Downside Balanced Upside
Uncertainty about PCE Inflation Risks to PCE Inflation
0
4
8
12
16
Lower Similar Higher
OctoberJanuary
0
4
8
12
16
Downside Balanced Upside
January 27–28, 2009 256 of 267Authorized for Public Release
2
4
6
8
10
12
Number of participants
Figure 2.A. Distribution of participants’ projections for the change in real GDP, 2009–11 and over the longer run
2009
October projections
-2.6--2.5
-2.4--2.3
-2.2--2.1
-2.0--1.9
-1.8--1.7
-1.6--1.5
-1.4--1.3
-1.2--1.1
-1.0--0.9
-0.8--0.7
-0.6--0.5
-0.4--0.3
-0.2--0.1
0.0-0.1
0.2-0.3
0.4-0.5
0.6-0.7
0.8-0.9
1.0-1.1
1.2-1.3
1.4-1.5
1.6-1.7
1.8-1.9
2.0-2.1
2.2-2.3
2.4-2.5
2.6-2.7
2.8-2.9
3.0-3.1
3.2-3.3
3.4-3.5
3.6-3.7
3.8-3.9
4.0-4.1
4.2-4.3
4.4-4.5
4.6-4.7
4.8-4.9
5.0-5.1
5.2-5.3
5.4-5.5
Percent range
January projections
2
4
6
8
10
12
Number of participants
2010
-2.6--2.5
-2.4--2.3
-2.2--2.1
-2.0--1.9
-1.8--1.7
-1.6--1.5
-1.4--1.3
-1.2--1.1
-1.0--0.9
-0.8--0.7
-0.6--0.5
-0.4--0.3
-0.2--0.1
0.0-0.1
0.2-0.3
0.4-0.5
0.6-0.7
0.8-0.9
1.0-1.1
1.2-1.3
1.4-1.5
1.6-1.7
1.8-1.9
2.0-2.1
2.2-2.3
2.4-2.5
2.6-2.7
2.8-2.9
3.0-3.1
3.2-3.3
3.4-3.5
3.6-3.7
3.8-3.9
4.0-4.1
4.2-4.3
4.4-4.5
4.6-4.7
4.8-4.9
5.0-5.1
5.2-5.3
5.4-5.5
Percent range
2
4
6
8
10
12
Number of participants
2011
-2.6--2.5
-2.4--2.3
-2.2--2.1
-2.0--1.9
-1.8--1.7
-1.6--1.5
-1.4--1.3
-1.2--1.1
-1.0--0.9
-0.8--0.7
-0.6--0.5
-0.4--0.3
-0.2--0.1
0.0-0.1
0.2-0.3
0.4-0.5
0.6-0.7
0.8-0.9
1.0-1.1
1.2-1.3
1.4-1.5
1.6-1.7
1.8-1.9
2.0-2.1
2.2-2.3
2.4-2.5
2.6-2.7
2.8-2.9
3.0-3.1
3.2-3.3
3.4-3.5
3.6-3.7
3.8-3.9
4.0-4.1
4.2-4.3
4.4-4.5
4.6-4.7
4.8-4.9
5.0-5.1
5.2-5.3
5.4-5.5
Percent range
2
4
6
8
10
12
Number of participants
Longer Run
-2.6--2.5
-2.4--2.3
-2.2--2.1
-2.0--1.9
-1.8--1.7
-1.6--1.5
-1.4--1.3
-1.2--1.1
-1.0--0.9
-0.8--0.7
-0.6--0.5
-0.4--0.3
-0.2--0.1
0.0-0.1
0.2-0.3
0.4-0.5
0.6-0.7
0.8-0.9
1.0-1.1
1.2-1.3
1.4-1.5
1.6-1.7
1.8-1.9
2.0-2.1
2.2-2.3
2.4-2.5
2.6-2.7
2.8-2.9
3.0-3.1
3.2-3.3
3.4-3.5
3.6-3.7
3.8-3.9
4.0-4.1
4.2-4.3
4.4-4.5
4.6-4.7
4.8-4.9
5.0-5.1
5.2-5.3
5.4-5.5
Percent range
NOTE: Definitions of variables are in the general note to table 1.
Exhibit 4: GDP Growth Projections of FOMC Participants for 2009 to 2011 and over the Longer Run
January 27–28, 2009 257 of 267Authorized for Public Release
2
4
6
8
10
12
Number of participants
Figure 2.B. Distribution of participants’ projections for the unemployment rate, 2009–11 and over the longer run
2009
October projections
4.4-4.5
4.6-4.7
4.8-4.9
5.0-5.1
5.2-5.3
5.4-5.5
5.6-5.7
5.8-5.9
6.0-6.1
6.2-6.3
6.4-6.5
6.6-6.7
6.8-6.9
7.0-7.1
7.2-7.3
7.4-7.5
7.6-7.7
7.8-7.9
8.0-8.1
8.2-8.3
8.4-8.5
8.6-8.7
8.8-8.9
9.0-9.1
9.2-9.3
Percent range
January projections
2
4
6
8
10
12
Number of participants
2010
4.4-4.5
4.6-4.7
4.8-4.9
5.0-5.1
5.2-5.3
5.4-5.5
5.6-5.7
5.8-5.9
6.0-6.1
6.2-6.3
6.4-6.5
6.6-6.7
6.8-6.9
7.0-7.1
7.2-7.3
7.4-7.5
7.6-7.7
7.8-7.9
8.0-8.1
8.2-8.3
8.4-8.5
8.6-8.7
8.8-8.9
9.0-9.1
9.2-9.3
Percent range
2
4
6
8
10
12
Number of participants
2011
4.4-4.5
4.6-4.7
4.8-4.9
5.0-5.1
5.2-5.3
5.4-5.5
5.6-5.7
5.8-5.9
6.0-6.1
6.2-6.3
6.4-6.5
6.6-6.7
6.8-6.9
7.0-7.1
7.2-7.3
7.4-7.5
7.6-7.7
7.8-7.9
8.0-8.1
8.2-8.3
8.4-8.5
8.6-8.7
8.8-8.9
9.0-9.1
9.2-9.3
Percent range
2
4
6
8
10
12
Number of participants
Longer Run
4.4-4.5
4.6-4.7
4.8-4.9
5.0-5.1
5.2-5.3
5.4-5.5
5.6-5.7
5.8-5.9
6.0-6.1
6.2-6.3
6.4-6.5
6.6-6.7
6.8-6.9
7.0-7.1
7.2-7.3
7.4-7.5
7.6-7.7
7.8-7.9
8.0-8.1
8.2-8.3
8.4-8.5
8.6-8.7
8.8-8.9
9.0-9.1
9.2-9.3
Percent range
NOTE: Definitions of variables are in the general note to table 1.
Exhibit 5: Unemployment Projections of FOMC Participants for 2009 to 2011 and over the Longer Run
January 27–28, 2009 258 of 267Authorized for Public Release
2
4
6
8
10
12
Number of participants
Figure 2.C. Distribution of participants’ projections for PCE inflation, 2009–11 and over the longer run
2009
October projections
-0.5--0.4
-0.3--0.2
-0.1-0.0
0.1-0.2
0.3-0.4
0.5-0.6
0.7-0.8
0.9-1.0
1.1-1.2
1.3-1.4
1.5-1.6
1.7-1.8
1.9-2.0
2.1-2.2
Percent range
January projections
2
4
6
8
10
12
Number of participants
2010
-0.5--0.4
-0.3--0.2
-0.1-0.0
0.1-0.2
0.3-0.4
0.5-0.6
0.7-0.8
0.9-1.0
1.1-1.2
1.3-1.4
1.5-1.6
1.7-1.8
1.9-2.0
2.1-2.2
Percent range
2
4
6
8
10
12
Number of participants
2011
-0.5--0.4
-0.3--0.2
-0.1-0.0
0.1-0.2
0.3-0.4
0.5-0.6
0.7-0.8
0.9-1.0
1.1-1.2
1.3-1.4
1.5-1.6
1.7-1.8
1.9-2.0
2.1-2.2
Percent range
2
4
6
8
10
12
Number of participants
Longer Run
-0.5--0.4
-0.3--0.2
-0.1-0.0
0.1-0.2
0.3-0.4
0.5-0.6
0.7-0.8
0.9-1.0
1.1-1.2
1.3-1.4
1.5-1.6
1.7-1.8
1.9-2.0
2.1-2.2
Percent range
NOTE: Definitions of variables are in the general note to table 1.
Exhibit 6: PCE Inflation Projections of FOMC Participants for 2009 to 2011 and over the Longer Run
January 27–28, 2009 259 of 267Authorized for Public Release
2
4
6
8
10
12
Number of participants
Figure 2.D. Distribution of participants’ projections for core PCE inflation, 2009–11 and over the longer run
2009
October projections
-0.1-0.0
0.1-0.2
0.3-0.4
0.5-0.6
0.7-0.8
0.9-1.0
1.1-1.2
1.3-1.4
1.5-1.6
1.7-1.8
1.9-2.0
2.1-2.2
Percent range
January projections
2
4
6
8
10
12
Number of participants
2010
-0.1-0.0
0.1-0.2
0.3-0.4
0.5-0.6
0.7-0.8
0.9-1.0
1.1-1.2
1.3-1.4
1.5-1.6
1.7-1.8
1.9-2.0
2.1-2.2
Percent range
2
4
6
8
10
12
Number of participants
2011
-0.1-0.0
0.1-0.2
0.3-0.4
0.5-0.6
0.7-0.8
0.9-1.0
1.1-1.2
1.3-1.4
1.5-1.6
1.7-1.8
1.9-2.0
2.1-2.2
Percent range
NOTE: Definitions of variables are in the general note to table 1.
Exhibit 7: Core PCE Inflation Projections of FOMC Participants for 2009 to 2011
January 27–28, 2009 260 of 267Authorized for Public Release
Appendix 4: Materials used by Mr. Madigan
January 27–28, 2009 261 of 267Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Material for FOMC Briefing on Monetary Policy Alternatives Brian Madigan January 27-28, 2009
January 27–28, 2009 262 of 267Authorized for Public Release
Exhibit 1 Unconventional Policy Tools
1. Policy communications • About the federal funds rate
o Quantitative expectations o Qualitative expectations o Conditional expectations
• About other policy tools o Amounts and time frame
• About inflation outlook and objectives o Explicit numerical inflation objective o Longer-term projections o Express concern about undesirably low inflation
2. Credit policies
• Supporting or substituting for dysfunctional markets 3. Transactions under open market authority
• Swap arrangements • MBS purchases • Treasury purchases
January 27–28, 2009 263 of 267Authorized for Public Release
Alternative A 1. The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 2. Information received since the Committee met in December suggests that the economy has weakened somewhat more than anticipated. Industrial production, housing starts, and employment have declined steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are sizable significant. 3. In light of the declines in the prices of energy and other commodities in recent months and the prospects for an extended period of economic slack, the Committee expects that inflation pressures will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term. 4. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. [Alt. 1: To provide further support to activity in housing markets, the Committee decided to expand its purchases of agency mortgage-backed securities to $750 billion this year from its previously announced total of $500 billion. The Committee anticipates completing these purchases by the end of the third quarter. The Committee also is prepared to purchase longer-term Treasury securities as needed to improve overall financial conditions.] [Alt. 2: To help improve overall financial conditions, the Committee decided to purchase up to $250 billion of longer-term Treasury securities this year. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand such purchases as conditions warrant.] Next month, the Federal Reserve will implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.
January 27–28, 2009 264 of 267Authorized for Public Release
Alternative B 1. The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 2. Information received since the Committee met in December suggests that the outlook for the economy remains weak. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant. 3. In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. 4. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities as needed to improve if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. Next month, the Federal Reserve will implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.
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Alternative C 1. The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 2. Information received since the Committee met in December suggests that the outlook for the economy remains weak. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain tight. The Committee anticipates that a recovery in economic activity will begin later this year, supported in part by additional fiscal measures and the monetary and liquidity policies already in place. 3. The declines in the prices of energy and other commodities in recent months have significantly reduced overall price inflation. With economic slack likely to persist, the Committee expects that both overall and core consumer price inflation will remain low. 4. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets. Next month, the Federal Reserve will implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments.
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December FOMC Statement The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent. Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further. Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
January 27–28, 2009 267 of 267Authorized for Public Release