september 17–18, 2013 authorized for public release 200 of ...after september 23, 2013, and shall...

Appendix 1: Materials used by Mr. Potter

September 17–18, 2013 Authorized for Public Release 200 of 241

Class II FOMC – Restricted (FR)

Material for Briefing on Financial Developments and Open Market Operations

Simon Potter September 17, 2013


Exhibit 1 Class II FOMC – Restricted (FR)

1

2

3

4

5

Change inView on

Policy RatePath

UncertaintyOver

MonetaryPolicy

UncertaintyOver Fed

LeadershipSuccession

Change inView on

AssetPurchases

Change inEconomicOutlook

Other

Importance AverageInterquartile Range

*Responses are expressed in terms of importance of each factor, where 1 is notimportant and 5 is very important.

Source: Federal Reserve Bank of New York Survey

(4) Factors Contributing to Ten-Year Yield Increase Over Intermeeting Period*

0.00

0.50

1.00

1.50

2.00

2.50

Sep '13 Sep '14 Sep '15 Sep '16

Percent 09/13/1307/30/1304/30/13

(2) Implied Federal Funds Rate Path*

*Derived from federal funds futures and Eurodollar futures.Source: Bloomberg, Federal Reserve Bank of New York

40

60

80

100

120

140

09/01/12 01/01/13 05/01/13 09/01/13

BPS/Year

Apr.-May FOMC

July FOMC

(3) Swaption-Implied Volatility*

*3-month 10-year swaption. Source: Barclays

0

20

40

60

80

100

< 6.0% 6.0 - 6.5% > 6.5%

Percent

Unemployment Rate

AverageInterquartile Range

(6) Probability of Unemployment RateOutcomes at First Rate Hike*

*Probabilities from dealer responses. Conditioned on assumption that projected inflation 1 to 2 years ahead remains below 2.5 percent and longer-term inflation expectations remain well anchored prior to the first rate hike. Source: Federal Reserve Bank of New York Survey

020406080

100

Sept. 2010Survey**

Oct. 2010Survey

July 2013Survey

Sept. 2013Survey

Percent

(5) Distribution of Market Beliefs on Balance Sheet Actions*

AverageDealers

*Dots scaled by number of dealers. Unmatched sample in 2010 vs.2013. **Sept. 2010 survey asks about probability of purchases in the next quarter. ***Greater of probabilities assigned to Treasury and MBS pace reduction.Source: Federal Reserve Bank of New York Survey

LSAP 2 Sept. 2013 Pace Reduction***

(1) Asset Performance Over Intermeeting Period*

*Current levels in parenthesis. **FHLMC 30-year survey rate.Source: Bloomberg, Barclays

Change Since July

FOMC

Change Since April-May FOMC

Changes in Basis Points2-Year Treasury (0.43%) +12 +2210-Year Treasury (2.88%) +27 +1215-Year 5-Year Forward BEI (2.33%) -9 -45Primary Mortgage Rate** (4.57%) +26 +117

Changes in PercentS&P 500 Index (1688) +0.1 +5.7DXY Dollar Index (81.45) -0.5 -0.4


https://www.federalreserve.gov/monetarypolicy/files/FOMC20130918meeting.pdf

200

300

400

500

600

700

01/01/12 07/01/12 01/01/13 07/01/13

BPS ItalySpain

Draghi Speech

OMT Details Announced

FOMC

(9) Euro Area Forward Rate Spreads*

*5-year, 5-year forward sovereign rate spreads to German equivalent. Source: Bloomberg

-20-10

0102030405060

Sep '13 Sep '14 Sep '15 Sep '16 Sep '17 Sep '18

BPS

Contract Expiry

EurodollarEuriborShort Sterling

(8) Changes in Short Rates Since the July ECB and BoE Meetings*

*Since 07/03/13. Source: Bloomberg

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

09/01/12 01/01/13 05/01/13 09/01/13

Percent

U.S.U.K.GermanyJapan

JEC FOMC

(7) Ten-Year Sovereign Yields

Source: Bloomberg

Exhibit 2 Class II FOMC – Restricted (FR)

80

85

90

95

100

105

110

09/01/12 01/01/13 05/01/13 09/01/13

Indexed to 05/21/13

Brazilian RealIndian RupeeTurkish LiraEM Currency Index

Depreciation Against Dollar

JEC FOMC

(11) Currency Performance Against the Dollar

Source: Bloomberg, J.P. Morgan

10

12

14

16

18

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

Ratio

S&P 500 IndexEurostoxx 50 IndexMSCI Emerging Markets Index

JEC FOMC

(10) Price-Earnings Ratios

Source: Bloomberg

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

09/01/12 01/01/13 05/01/13 09/01/13

Percent Percent

Brazil, India, and Turkey (LHS)Other Emerging Markets (RHS)

JEC FOMC

(12) Emerging Market Sovereign Yields*

*2012 GDP-weighted average of five-year yields. Source: Bloomberg, Haver Analytics, FRBNY Staff Calculations



1.0

2.0

3.0

4.0

5.0

09/01/12 01/01/13 05/01/13 09/01/13

Multiple All OffersFavorable Offers**

FOMC New Program

(16) Treasury Purchase Operation Offer-to-Cover Ratios*

*8-operation moving average. **Those classified in the FRBNY’s favorable-to-market bucket, which generally includes offers up to 2 to 6 ticks above market depending on sector. Source: Federal Reserve Bank of New York

Exhibit 3

0

10

20

30

40

50

-1 FirstCut

+1 +2 +3 +4 +5 +6

$ Billions

Meetings Around First Expected Cut

TreasuryMBS

(13) Median Expected Monthly Purchase Pace Announced at FOMC Meetings

Source: Federal Reserve Bank of New York Survey

010203040506070

<2500 2500-3000

3000-3500

3500-4000

4000-4500

4500-5000

>5000

Percent

Par Amount ($ Billions)

< 7.2% End-2013 Unemployment7.2 - 7.3% End-2013 Unemployment> 7.3% End-2013 Unemployment

(14) Probability Distribution of End-2014 SOMA Portfolio Holdings*

*Average probabilities from dealer responses. Source: Federal Reserve Bank of New York Survey

-300-250-200-150-100

-500

50100

09/01/12 01/01/13 05/01/13 09/01/13

BPS 3.5% Front Month4.0% Front Month4.5% Front Month

Fails Charge Apr.-May FOMC

July FOMC

(18) Dollar Roll Implied Financing Rates*

*30-year FNMA dollar rolls. Front month is currently October-November roll. Source: J.P. Morgan

-10

-8

-6

-4

-2

0

09/01/12 01/01/13 05/01/13 09/01/13

BPS Execution to CoverExecution to Worst

Apr.-May FOMC

July FOMC

(17) MBS Purchase Operation Execution To Cover and Worst Prices

* 10-day moving average, volume-weighted by day. Shows spread between executed price and next best proposition and spread between executed price and worst proposition. Source: Federal Reserve Bank of New York

0.00

0.05

0.10

0.15

0.20

0.25

0.30

-30 +0 +30 +60 +90 +120 +150

Percent

Days to Maturity, Relative to Est. Debt Limit Deadline

2011 Episode, 30 Days Ahead2011 Episode, 5 Days Ahead09/13/13

(15) Treasury Bill Yield Curve

Source: Federal Reserve Bank of New York




Exhibit 4 (Last)

0

100

200

300

400

500

600

3.0 3.5 4.0 4.5 5.0

$ Billions

Coupon (Percent)

Production Coupons

(20) Thirty-Year Fixed Rate TBA MBS Outstanding (Excluding SOMA Holdings)*

*Excludes CMOs. Source: Credit Suisse, KDS


020406080

100120140

09/2012 03/2013 09/2013 03/2014

$ Billions Gross TBA IssuanceTotal MBS Purchases

Forecasts Actuals

(19) Gross TBA Issuance and MBS Purchases*

*Gross TBA issuance excludes 10- and 20-year, non-TBA eligible, and specified pool issuance. Assumes September 2013 Tealbook Alt-B interest rate path and a constant purchase pace of $40 billion per month. Source: BlackRock, Federal Reserve Bank of New York



Appendix 2: Materials used by Mr. Burke



Overnight Reverse Repurchase Agreement Resolution September 17, 2013


Overnight Reverse Repurchase Agreement Resolution

September 17, 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

ends on January 29, 2014.”


Page 1 of 1

Appendix 3: Materials used by Mr. Wilcox



Material for

Forecast Summary

David Wilcox September 17, 2013


Forecast Summary

Confidence Intervals Based on FRB/US Stochastic Simulations

-2

0

2

4

6

8

10Percent change, annual rate

Real GDP

2012 2013 2014 2015 2016

70% confidence interval

September TBJuly TB

-7

-6

-5

-4

-3

-2

-1

0

1Percent

GDP Gap

2008 2009 2010 2011 2012 2013 2014 2015 2016

-1

0

1

2

3

4

5Percent change, annual rate

PCE Prices Excluding Food and Energy

2012 2013 2014 2015 20163

4

5

6

7

8

9

10Percent

Unemployment Rate

2012 2013 2014 2015 2016*Effect of emergency unemployment compensation and state-federalextended benefit programs.

Natural Rate with EEB*

132

135

138

141

144Millions

Total Payroll Employment

2012 2013 2014 2015 2016

September TBJuly TBSeptember 2012 TB

-3

-2

-1

0

1

2

3

4

5Percentage points

1990 1993 1996 1999 2002 2005 2008 2011

Alternative Measures of Labor Market Slack

*Index levels normalized to have same mean and standard deviationas staff unemployment gap.

Jobs hard-to-fill (NFIB survey)*Job availability (Conference Board)*Unemployment rate gap


Page 1 of 2


Evolution of various key activity, inflation, and financial projections

2013

H1 H2 2013 2014 2015

1. Real GDP growth*Current TB 2.0 2.5 2.3 3.1 3.4

Sept. 2012 2.1 2.7 2.4 3.2 3.6

2. Unemployment rate**Current TB 7.5 7.2 7.2 6.6 5.8

Sept. 2012 8.2 8.0 8.0 7.6 6.7

3. Participation rate**Current TB 63.4 63.3 63.3 63.3 63.2

Sept. 2012 63.7 63.7 63.7 63.7 NA

4. Headline PCE inflation*Current TB 0.6 1.6 1.1 1.2 1.4

Sept. 2012 1.4 1.4 1.4 1.4 1.5

5. Core PCE inflation*Current TB 1.1 1.4 1.2 1.5 1.6

Sept. 2012 1.6 1.6 1.6 1.6 1.7

6. Ten-year Treasury yield**Current TB 1.99 3.10 3.10 3.60 4.00

Sept. 2012 2.40 3.00 3.00 3.65 4.25

7. Mortgage rate**Current TB 3.64 4.65 4.65 5.05 5.40

Sept. 2012 3.95 4.55 4.55 5.15 5.80

8. Stock market (2012:Q1=100)*** Current TB 114.7 123.4 123.4 132.8 143.0 Sept. 2012 105.1 110.1 110.1 119.3 127.1

9. Real broad dollar (2012:Q1=100)** Current TB 100.8 101.8 101.8 99.0 96.5 Sept. 2012 100.6 99.1 99.1 95.9 92.9

*Percent change at annual rate; annual figures are Q4-over-Q4 percent changes.

**Quarterly average at end of period. ***Level at end of period.


Page 2 of 2

Appendix 4: Materials used by Mr. Kamin


Class II FOMC – Restricted (FR) Material for The International Outlook Steven B. Kamin September 17, 2013


Class II FOMC - Restricted (FR) Exhibit 1

The International Outlook

-2

0

2

4

6

2010 2011 2012 2013 2014 2015 2016

1. Total Foreign GDPPercent change, annual rate

EME crisis simulationPrevious Tealbook

-4

-2

0

2

4

6

8

10

12

1980 1985 1990 1995 2000 2005 2010 2015

2. Emerging Market Economies GDPPercent change, 4-quarter

Latin AmericanCrisis

MexicanCrisis

AsianCrisis

RussianCrisis

-2

0

2

4

6

2010 2011 2012 2013 2014 2015 2016

3. U.S. GDPPercent change, annual rate

5

10

15

20

25

30

1980 1985 1990 1995 2000 2005 2010

5. EME Vulnerability IndexAverage ranking*

Latin AmericanCrisis

MexicanCrisis

AsianCrisis

RussianCrisis

* Based on 4 indicators for 13 EMEs: CA/GDP, gross government debt/GDP,average inflation, and increase in bank credit to the private sector/GDP.

0

400

800

1200

1600

2000

1991 1995 1999 2003 2007 2011

4. EMBI+ Sovereign SpreadBasis points

MexicanCrisis

AsianCrisis

RussianCrisis


Page 1 of 1


Appendix 5: Materials used by Mr. Kiley


Class II FOMC – Restricted (FR) Material for Briefing on

Financial Stability Michael T. Kiley September 17, 2013


Exhibit 1Recent Developments

60

80

100

120

Basis Points

Implied volatility (left)10-year Treasury yield (right)

Sept. Nov. Jan. Mar. May July Sept.2012 2013

10-year Treasury Yield and Options Implied Volatility

Percent

Sept. 16

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

Note: Implied volatility from options on the ten-year swap rate that expirein six months (6m10y swaption). Source: Bloomberg and staff calculations from JP Morgan data.

0

5

10

15

20

25

30

0

50

100

150

200

250

300

350

400

450Ratio Billions of dollars

Average Assets to Equity (left scale)Total Assets (right scale)

2013201120092007200520032001

Total Agency REIT Assets

Quarterly

Q2

Source: Bloomberg.

0

1

2

3

4

2006 2007 2008 2009 2010 2011 2012 2013 2014 0

5

10

1532nds of a point per $1 bil net order flow

2 year note (left)5 year note (right)

Weekly Price Impact Coefficients

July 1

Note: Based on 5 minute intervals. Source: BrokerTec, staff estimates.

-80

-60

-40

-20

0

20

40

60Billions of dollars

Large Commercial BanksBanks in top 4 BHCs

201320102007200420011998

Net Unrealized Gains on AFS Securities

Weekly, SA

Sept. 4

Note: ’Large Commercial Banks’ are the top 25 banks by assets. Top 4BHCs are BofA, Citi, JPMC, and Wells. Source: FR 2644.

0

1

2

3

4

5

6

7

8

0

2

4

6

8

10

12

14

16Percent Percent

Ten-year BBB (left)Ten-year High Yield (right)

2013200920052001199719931989

Domestic Corporate Bond Spreads to SimilarMaturity Treasury

Monthly

Sept.

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

0

20

40

60

80

100

120Billions of dollars

2009 2010 2011 2012 2013

Speculative grade bonds Leveraged loans

Monthly rate

Source: Thomson Reuters LPC LoanConnector and SDC.

Issuance of Riskier Corporate Credit

H1H2

Q1

Q2

Jul/Aug(p)


Page 1 of 2


Exhibit 2Indicators of Vulnerabilities

1990 1995 2000 2005 2010 2015 60

80

100

120

140

160

180

200Jan. 2002 = 100

Price to Rent Ratio

Monthly

Median

P10,P90

June

Source: For house prices, CoreLogic; for rent data, Bureau of LaborStatistics.

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9Ratio

Final estimate of trend ratioActual ratio

2013200820031998199319881983

Private Nonfinancial Sector Credit-to-GDP Ratio

Quarterly

Q1

Note: Calculated using an HP filter with lambda=400,000 Source: FOFA, NIPA, and staff calculations.

5

6

7

8

9

10

11

12Percent

Tier 1 common ratioLeverage ratio

2013201120092007200520032001

Regulatory Capital Ratios at BHCs

Quarterly, SA

Q2

Source: FR Y-9C.

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40Ratio

Final estimate of trend ratioActual ratio

2013200820031998199319881983

Net Short-term Wholesale Debt of Financial Sector-to-GDP Ratio

Quarterly

Q1

Note: Calculated using an HP filter with lambda=400,000 Source: FOF and staff calculations.

• The cyclical vulnerability of the financial system appears moderate

• A number of potential shocks could prove challenging - for example, related to the debt ceiling, EMEs, and geopolitical risks

• Staff continue to pursue initiatives related to those pockets of concern we have identified

Evaluate risk management at agency REITs

Ensure compliance of banks with the recent guidance for leveraged-loan issuance

Scrutinize interest-rate risk at banks

Evaluate exposures to emerging market economies

Summary


Page 2 of 2


Appendix 6: Materials used by Mr. Gust


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

Summary of Economic Projections

Christopher Gust September 17, 2013


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

Change in real GDP

Percent

3

2

1

0

1

2

3

4

5

-

+

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

Central tendency of projections

Range of projections

Actual

Unemployment rate

Percent

5

6

7

8

9

10

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

PCE inflation

Percent

1

2

3

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

Core PCE inflation

Percent

1

2

3

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

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


Page 1 of 5


2013 2014 2015 2016 Longer run

Central Tendency 2.0 to 2.3 2.9 to 3.1 3.0 to 3.5 2.5 to 3.3 2.2 to 2.5 June projections 2.3 to 2.6 3.0 to 3.5 2.9 to 3.6 --- 2.3 to 2.5

Range 1.8 to 2.4 2.2 to 3.3 2.2 to 3.7 2.2 to 3.5 2.1 to 2.5 June projections 2.0 to 2.6 2.2 to 3.6 2.3 to 3.8 --- 2.0 to 3.0

Memo: Tealbook 2.3 3.1 3.4 3.2 2.3 June Tealbook 2.5 3.4 3.6 --- 2.3

2013 2014 2015 2016 Longer run

Central Tendency 7.1 to 7.3 6.4 to 6.8 5.9 to 6.2 5.4 to 5.9 5.2 to 5.8 June projections 7.2 to 7.3 6.5 to 6.8 5.8 to 6.2 --- 5.2 to 6.0

Range 6.9 to 7.3 6.2 to 6.9 5.3 to 6.3 5.2 to 6.0 5.2 to 6.0 June projections 6.9 to 7.5 6.2 to 6.9 5.7 to 6.4 --- 5.0 to 6.0


2013 2014 2015 2016 Longer run

Central Tendency 1.1 to 1.2 1.3 to 1.8 1.6 to 2.0 1.7 to 2.0 2.0 June projections 0.8 to 1.2 1.4 to 2.0 1.6 to 2.0 --- 2.0

Range 1.0 to 1.3 1.2 to 2.0 1.4 to 2.3 1.5 to 2.3 2.0 June projections 0.8 to 1.5 1.4 to 2.0 1.6 to 2.3 --- 2.0


2013 2014 2015 2016

Central Tendency 1.2 to 1.3 1.5 to 1.7 1.7 to 2.0 1.9 to 2.0 June projections 1.2 to 1.3 1.5 to 1.8 1.7 to 2.0 ---

Range 1.2 to 1.4 1.4 to 2.0 1.6 to 2.3 1.7 to 2.3 June projections 1.1 to 1.5 1.5 to 2.0 1.7 to 2.3 ---

Memo: Tealbook 1.2 1.5 1.6 1.7 June Tealbook 1.2 1.6 1.8 ---

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

Exhibit 2. Economic projections for 2013-2016 and over the longer run (percent)

Change in real GDP

Unemployment rate

PCE inflation

Core PCE inflation


Page 2 of 5

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

3

12

2

Appropriate timing of policy firming

Number of participants

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

2013 2014 2015 2016

September projections

June projections

Appropriate pace of policy firming Percent

Target federal funds rate at yearend

0

1

2

3

4

5

6

2013 2014 2015 2016 Longer run


Appropriate pace of policy firming Percent

Target federal funds rate at yearend

0

1

2

3

4

5

6

2013 2014 2015 2016 Longer run

June projections

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


Page 3 of 5


Exhibit 4. Scatterplot of unemployment and PCE inflation rates in the initial year of policy firming (in percent)

PCE

inflation

1.0

1.5

2.0

2.5

5.0 5.5 6.0 6.5 7.0Unemployment Rate

Year of Firming

2014

2015

2016

Note: When the projections of two or more participants are identical, larger markers, which represent one partici-pant each, are used so that each projection can be seen.


Page 4 of 5


Exhibit 5. Uncertainty and risks in economic projections

Uncertainty about GDP growth


2

4

6

8

10

12

14

16

18

20

Lower Broadly Highersimilar


June projections

Uncertainty about the unemployment rate


2

4

6

8

10

12

14

16

18

20


Uncertainty about PCE inflation


2

4

6

8

10

12

14

16

18

20


Uncertainty about core PCE inflation


2

4

6

8

10

12

14

16

18

20


Risks to GDP growth


2

4

6

8

10

12

14

16

18

20

Weighted to Broadly Weighted todownside balanced upside


June projections

Risks to the unemployment rate


2

4

6

8

10

12

14

16

18

20


Risks to PCE inflation


2

4

6

8

10

12

14

16

18

20


Risks to core PCE inflation


2

4

6

8

10

12

14

16

18

20



Page 5 of 5


Appendix 7: Materials used by Mr. Meyer


Class I FOMC – Restricted Controlled (FR) Material for

FOMC Briefing on Monetary Policy Alternatives

Steve Meyer September 17-18, 2013


Summary of Economic Projections and Market Expectations

• Is June "economicscenario" still mostlikely?

• When will the FOMC cutthe pace of purchases?

• Will the Committeechange its forwardguidance?

Key Questions

2011 2013 2015 2017 5

6

7

8

9

10Percent

Unemployment Rate

••

••

••

• •

Median Sep’12 SEPMedian Jun’13 SEP

•Median Sep’13 SEP•

2011 2013 2015 20170

1

2

3

4

5

4 Quarter Percent Change

Total PCE Prices

• • • ••

• • •

Median Sep’12 SEPMedian Jun’13 SEP

•Median Sep’13 SEP•

• 12 participants see a cutin pace this year andpurchases endingaround mid-2014 as inTealbook

• 3 see larger totalpurchases or latertapering

• 2 see earlier end andsmaller total purchases

SEP Balance Sheet Projections

0

10

20

30

40

50

60

70

80

90

100

Percent of Respondents

Sept. Later this Year >2013

PD Citi WSJ MS Barclays

Modal Timing of First Pace Reduction

0

1

2

3

4

5

6

7

8

9

10Number of Dealers

Low Probability

35%

Moderate Probability

55-60%

High Probability

70%

Dealer Conviction About a Pace Reduction in September

<_ >_

2013 2014 2015 2016 Longer run

0

1

2

3

4

5

6

Percent

••••••••••••••••• •••••••••••••••••

••••••••••••••

•••

••••••••••••••

•••

•••••••••••••••••

Appropriate Pace of Policy Firming: SEP (September 2013)

Target federal funds rate at year end•• Lower unemployment

rate threshold

• Inflation "floor"

• Post-threshold guidance

• Post-liftoff guidance

Possible Changes to Forward Guidance


Page 1 of 13


JULY FOMC STATEMENT

1. Information received since the Federal Open Market Committee met in June suggests thateconomic activity expanded at a modest pace during the first half of the year. Labormarket conditions have shown further improvement in recent months, on balance, but theunemployment rate remains elevated. Household spending and business fixed investmentadvanced, and the housing sector has been strengthening, but mortgage rates have risensomewhat and fiscal policy is restraining economic growth. Partly reflecting transitoryinfluences, inflation has been running below the Committee’s longer-run objective, butlonger-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximumemployment and price stability. The Committee expects that, with appropriate policyaccommodation, economic growth will pick up from its recent pace and theunemployment rate will gradually decline toward levels the Committee judges consistentwith its dual mandate. The Committee sees the downside risks to the outlook for theeconomy and the labor market as having diminished since the fall. The Committeerecognizes that inflation persistently below its 2 percent objective could pose risks toeconomic performance, but it anticipates that inflation will move back toward its objectiveover the medium term.

3. To support a stronger economic recovery and to help ensure that inflation, over time, is atthe rate most consistent with its dual mandate, the Committee decided to continuepurchasing additional agency mortgage-backed securities at a pace of $40 billion permonth and longer-term Treasury securities at a pace of $45 billion per month. TheCommittee is maintaining its existing policy of reinvesting principal payments from itsholdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Takentogether, these actions should maintain downward pressure on longer-term interest rates,support mortgage markets, and help to make broader financial conditions moreaccommodative.

4. The Committee will closely monitor incoming information on economic and financialdevelopments in coming months. The Committee will continue its purchases of Treasuryand agency mortgage-backed securities, and employ its other policy tools as appropriate,until the outlook for the labor market has improved substantially in a context of pricestability. The Committee is prepared to increase or reduce the pace of its purchases tomaintain appropriate policy accommodation as the outlook for the labor market orinflation changes. In determining the size, pace, and composition of its asset purchases,the Committee will continue to take appropriate account of the likely efficacy and costs ofsuch purchases as well as the extent of progress toward its economic objectives.

5. To support continued progress toward maximum employment and price stability, theCommittee today reaffirmed its view that a highly accommodative stance of monetarypolicy will remain appropriate for a considerable time after the asset purchase programends and the economic recovery strengthens. In particular, the Committee decided to keepthe target range for the federal funds rate at 0 to ¼ percent and currently anticipates thatthis exceptionally low range for the federal funds rate will be appropriate at least as longas the unemployment rate remains above 6½ percent, inflation between one and two yearsahead is projected to be no more than a half percentage point above the Committee’s 2


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percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.


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FOMC STATEMENT—SEPTEMBER 2013 ALTERNATIVE A

1. Information received since the Federal Open Market Committee met in June July suggeststhat economic activity expanded has been expanding at a modest moderate pace duringthe first half of the year. Some indicators of labor market conditions have shown[ further ] improvement in recent months, on balance, but the unemployment rate remainselevated and job gains appear to have slowed somewhat. Household spending andbusiness fixed investment advanced, and the housing sector has been strengthening, butmortgage rates have risen somewhat further and fiscal policy is restraining economicgrowth. Partly reflecting transitory influences Apart from fluctuations due to changesin energy prices, inflation has been running below the Committee’s longer-run objective,but longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximumemployment and price stability. The Committee expects that, with appropriate policyaccommodation, economic growth will pick up from its recent pace and theunemployment rate will gradually decline toward levels the Committee judges consistentwith its dual mandate. The Committee sees the downside risks to the outlook for theeconomy and the labor market as having diminished since the last fall, but the tighteningof financial conditions observed in recent months, if sustained, could slow the pace ofimprovement in the economy and labor market. The Committee recognizes thatinflation persistently below its 2 percent objective could pose risks to economicperformance, but it anticipates that inflation will move back toward its objective over themedium term.

3. The Committee judges that the improvement in the outlook for the labor market andthe extent of progress toward its economic objectives since it began its current assetpurchase program are not yet sufficient to warrant an adjustment in the pace atwhich it is adding to its holdings of longer-term securities. To support a strongereconomic recovery and to help ensure that inflation, over time, is at the rate mostconsistent with its dual mandate Accordingly, the Committee decided to continuepurchasing additional agency mortgage-backed securities at a pace of $40 billion permonth and longer-term Treasury securities at a pace of $45 billion per month. TheCommittee is maintaining its existing policy of reinvesting principal payments from itsholdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Takentogether, these actions should maintain downward pressure on longer-term interest rates,support mortgage markets, and help to make broader financial conditions moreaccommodative, which in turn should promote a stronger economic recovery andhelp to ensure that inflation, over time, is at the rate most consistent with theCommittee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financialdevelopments in coming months and The Committee will continue its purchases ofTreasury and agency mortgage-backed securities, and employ its other policy tools asappropriate, until the outlook for the labor market has improved substantially in a contextof price stability. The Committee is prepared to increase or reduce the pace of itspurchases to maintain appropriate policy accommodation as the outlook for the labormarket or inflation changes. In determining the size, pace, and composition of its asset


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purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives. At such time as the Committee sees sufficient progress toward its objectives for the labor market and inflation, some moderation in the pace of its securities purchases will become appropriate. Asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, theCommittee today reaffirmed its view that a highly accommodative stance of monetarypolicy will remain appropriate for a considerable time after the asset purchase programends and the economic recovery strengthens. In particular, the Committee decided to keepthe target range for the federal funds rate at 0 to ¼ percent and currently anticipates thatthis exceptionally low range for the federal funds rate will be appropriate at least as longas the unemployment rate remains above 6½ 6 percent, inflation between one and twoyears ahead is projected to be no more than a half percentage point above the Committee’s2 percent longer-run goal, and longer-term inflation expectations continue to be wellanchored. Moreover, the Committee anticipates that it would not raise its target forthe federal funds rate if inflation between one and two years ahead were projected tobe below 1¾ percent. In determining how long to maintain a highly accommodativestance of monetary policy, the Committee will also consider other information, includingOnce the unemployment rate reaches 6 percent, and assuming inflation is wellcontained at that time, the Committee will consider a broad set of indicators indetermining how long to maintain a highly accommodative stance of monetarypolicy. Relevant factors include additional measures of labor market conditions such asthe level and growth of employment, indicators of inflation pressures and inflationexpectations, and readings on financial developments. When the Committee decides tobegin to remove policy accommodation, it will take a balanced approach consistent withits longer-run goals of maximum employment and inflation of 2 percent. Moreover, theCommittee currently anticipates that it will be appropriate to normalize the federal fundsrate only gradually because ongoing headwinds are likely to take a considerable time toabate fully, even after the economy has reached maximum employment and inflationhas returned to its longer-run objective, it will likely be appropriate for the federalfunds rate target to remain below its longer-run normal value as persistentheadwinds abate.


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FOMC STATEMENT—SEPTEMBER 2013 ALTERNATIVE B

1. Information received since the Federal Open Market Committee met in June July suggeststhat economic activity expanded has been expanding at a modest moderate pace duringthe first half of the year. Some indicators of labor market conditions have shown[ further ] improvement in recent months, on balance, but the unemployment rate remainselevated. Household spending and business fixed investment advanced, and the housingsector has been strengthening, but mortgage rates have risen somewhat further and fiscalpolicy is restraining economic growth. Partly reflecting transitory influences Apart fromfluctuations due to changes in energy prices, inflation has been running below theCommittee’s longer-run objective, but longer-term inflation expectations have remainedstable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximumemployment and price stability. The Committee expects that, with appropriate policyaccommodation, economic growth will pick up from its recent pace and theunemployment rate will gradually decline toward levels the Committee judges consistentwith its dual mandate. The Committee sees the downside risks to the outlook for theeconomy and the labor market as having diminished [ , on net, ] since the last fall, butthe tightening of financial conditions observed in recent months, if sustained, couldslow the pace of improvement in the economy and labor market. The Committeerecognizes that inflation persistently below its 2 percent objective could pose risks toeconomic performance, but it anticipates that inflation will move back toward its objectiveover the medium term.

3. Taking into account the extent of federal fiscal retrenchment, the Committee sees theimprovement in economic activity and labor market conditions since it began itsasset purchase program a year ago as consistent with growing underlying strength inthe broader economy. However, the Committee decided to await more evidence thatprogress will be sustained before adjusting the pace of its purchases. To support astronger economic recovery and to help ensure that inflation, over time, is at the rate mostconsistent with its dual mandate Accordingly, the Committee decided to continuepurchasing additional agency mortgage-backed securities at a pace of $40 billion permonth and longer-term Treasury securities at a pace of $45 billion per month. TheCommittee is maintaining its existing policy of reinvesting principal payments from itsholdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Takentogether, these actions should maintain downward pressure on longer-term interest rates,support mortgage markets, and help to make broader financial conditions moreaccommodative, which in turn should promote a stronger economic recovery andhelp to ensure that inflation, over time, is at the rate most consistent with theCommittee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financialdevelopments in coming months and The Committee will continue its purchases ofTreasury and agency mortgage-backed securities, and employ its other policy tools asappropriate, until the outlook for the labor market has improved substantially in a contextof price stability. The Committee is prepared to increase or reduce the pace of itspurchases to maintain appropriate policy accommodation as the outlook for the labor


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market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives. In judging when to moderate the pace of asset purchases, the Committee will [ , at its coming meetings, ] be looking for further evidence consistent with assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, theCommittee today reaffirmed its view that a highly accommodative stance of monetarypolicy will remain appropriate for a considerable time after the asset purchase programends and the economic recovery strengthens. In particular, the Committee decided to keepthe target range for the federal funds rate at 0 to ¼ percent and currently anticipates thatthis exceptionally low range for the federal funds rate will be appropriate at least as longas the unemployment rate remains above 6½ percent, inflation between one and two yearsahead is projected to be no more than a half percentage point above the Committee’s 2percent longer-run goal, and longer-term inflation expectations continue to be wellanchored. In determining how long to maintain a highly accommodative stance ofmonetary policy, the Committee will also consider other information, including additionalmeasures of labor market conditions, indicators of inflation pressures and inflationexpectations, and readings on financial developments. When the Committee decides tobegin to remove policy accommodation, it will take a balanced approach consistent withits longer-run goals of maximum employment and inflation of 2 percent. [ Moreover, theCommittee currently anticipates that it will be appropriate to normalize the federal fundsrate only gradually because ongoing headwinds are likely to take a considerable time toabate fully, even after the economy has reached maximum employment and inflationhas returned to its longer-run objective, it will likely be appropriate for the federalfunds rate target to remain below its longer-run normal value as persistentheadwinds abate. ]


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FOMC STATEMENT—SEPTEMBER 2013 ALTERNATIVE C

1. Information received since the Federal Open Market Committee met in June July suggeststhat economic activity expanded is expanding at a modest moderate pace during the firsthalf of the year. Labor market conditions have shown further improvement in recentmonths, on balance, with continuing gains in payroll employment, but although theunemployment rate remains elevated. Household spending and business fixed investmentadvanced, and the housing sector has been strengthening, but continued to strengthen,even though mortgage rates have risen somewhat further and fiscal policy is restrainingeconomic growth. Partly reflecting transitory influences Apart from fluctuations due tochanges in energy prices, inflation has been running somewhat below the Committee’slonger-run objective, but longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximumemployment and price stability. The Committee expects that, with appropriate policyaccommodation, economic growth will pick up from its recent pace and theunemployment rate will gradually decline toward levels the Committee judges consistentwith its dual mandate. The Committee sees the downside risks to the outlook for theeconomy and the labor market as having diminished since the last fall [ and has becomemore confident that labor market conditions will continue to improve over themedium term ]. The Committee recognizes that inflation persistently below its 2 percentobjective could pose risks to economic performance, but it also anticipates that inflationwill move back toward its 2 percent objective over the medium term.

3. To support a stronger economic recovery and to help ensure that inflation, over time, is atthe rate most consistent with its dual mandate, the Committee decided to continuepurchasing additional agency mortgage-backed securities at a pace of $40 billion permonth and longer-term Treasury securities at a pace of $45 billion per month. In light ofthe improvement in the labor market since the Committee began its current assetpurchase program a year ago, the Committee decided today to make modestdownward adjustments in its asset purchases, to a monthly pace of [ $35 ] billionfrom $40 billion for its purchases of additional agency mortgage-backed securities,and to a monthly pace of [ $40 ] billion from $45 billion for longer-term Treasurysecurities. The Committee is maintaining its existing policy of reinvesting principalpayments from its holdings of agency debt and agency mortgage-backed securities inagency mortgage-backed securities and of rolling over maturing Treasury securities atauction. Taken together, these actions The Committee’s sizable and still-increasingholdings of longer-term securities should maintain downward pressure on longer-terminterest rates, support mortgage markets, and help to make broader financial conditionsmore accommodative, which in turn should promote a stronger economic recoveryand help to ensure that inflation, over time, is at the rate most consistent with theCommittee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financialdevelopments in coming months and The Committee will continue its purchases ofTreasury and agency mortgage-backed securities, and employ its other policy tools asappropriate, until the outlook for the labor market has improved substantially in a contextof price stability. If the Committee sees continued improvement in labor marketconditions and inflation moving back toward its longer-run objective, then


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additional measured reductions in the pace of asset purchases likely would become appropriate. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

OR 4'. The Committee will closely monitor incoming information on economic and financial

developments in coming months. If the Committee sees sufficient further progress toward its objectives for the labor market and inflation, as it expects, then additional measured reductions in the pace of asset purchases would become appropriate. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In particular, the Committee anticipates that by the time its asset purchases end, the unemployment rate will be around 7 percent and expected to decline further, and inflation will be moving back toward its 2 percent longer-run goal. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on its economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

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


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JULY 2013 DIRECTIVE

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

and financial conditions that will foster maximum employment and price stability. In

particular, the Committee seeks conditions in reserve markets consistent with federal funds

trading in a range from 0 to ¼ percent. The Committee directs the Desk to undertake open

market operations as necessary to maintain such conditions. The Desk is directed to continue

purchasing longer-term Treasury securities at a pace of about $45 billion per month and to

continue purchasing agency mortgage-backed securities at a pace of about $40 billion per

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

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

backed securities transactions. The Committee directs the Desk to maintain its policy of

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

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

mortgage-backed securities. The System Open Market Account Manager and the Secretary

will keep the Committee informed of ongoing developments regarding the System’s balance

sheet that could affect the attainment over time of the Committee’s objectives of maximum

employment and price stability.


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DIRECTIVE FOR SEPTEMBER 2013 ALTERNATIVE A


















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DIRECTIVE FOR SEPTEMBER 2013 ALTERNATIVE B


















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DIRECTIVE FOR SEPTEMBER 2013 ALTERNATIVE C





market operations as necessary to maintain such conditions. Beginning in October, the Desk

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

$45 $40 billion per month and to continue purchasing purchase agency mortgage-backed

securities at a pace of about $40 $35 billion per month. The Committee also directs the Desk

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

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

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

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

mortgage-backed securities in agency mortgage-backed securities. The System Open Market

Account Manager and the Secretary will keep the Committee informed of ongoing

developments regarding the System’s balance sheet that could affect the attainment over time

of the Committee’s objectives of maximum employment and price stability.


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