Appendix 1: Materials used by Mr. Kos

March 16, 2004 94 of 107

1.00

1.25

1.50

1.75

2.00

2.25

2.50

11/03 12/03 1/04 2/04 3/041.00

1.25

1.50

1.75

2.00

2.25

2.50

Page 1Current U.S. 3-Month Deposit Rates and

Rates Implied by Traded Forward Rate AgreementsNovember 1, 2003 - March 12, 2004

LIBOR Fixing 3M Forward 6M Forward 9M Forward

11/7 Oct.NFP*: +61K

12/5 Nov.NFP*: -93K

12/9FOMC

1/9 Dec.NFP*: -149 K

1/28FOMC

3/5 Feb.NFP*: -109 K

2/6 Jan.NFP*: -63K

* Actual Non-Farm Payrolls less consensus forecasts

PercentPercent

3.0

3.5

4.0

4.5

5.0

1/03 2/03 3/03 4/03 5/03 6/03 7/03 8/03 9/03 10/03 11/03 12/03 1/04 2/04 3/04600

700

800

900

1000

10 Year Treasury Yield (LHS)

10-year Treasury Yield and Fed Custody Holdings of Treasury SecuritiesJanuary 1, 2003 - March 12, 2004Percent USD Billions

Fed Custody Holdings ofTreasury Securities (RHS)

-1.0

0.0

1.0

2.0

3.0

4.0

1/90 1/91 1/92 1/93 1/94 1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 1/03 1/04-1.0

0.0

1.0

2.0

3.0

4.0

Spread between Treasury 10-Year Note and 3-Month BillJanuary 1, 1990 - March 12, 2004Percent Percent

March 16, 2004 95 of 107

Breakeven Inflation Rates on TIPS:Spreads between U.S. Nominal and Inflation-Indexed Treasury Yields

January 1, 2003 - March 12, 2004 Basis PointsBasis Points

100

150

200

250

1/03 3/03 5/03 7/03 9/03 11/03 1/04 3/04100

150

200

250

5-Year

10-Year

Current Euro Area 3-Month Deposit Rates and Rates Implied byTraded Forward Rate Agreements

November 1, 2003 - March 15, 2004PercentPercent

1.75

2.00

2.25

2.50

2.75

3.00

11/03 12/03 1/04 2/04 3/041.75

2.00

2.25

2.50

2.75

3.00

Page 2

LIBOR Fixing 3M Forward 6M Forward 9M Forward

300350400450500550600650

11/1 12/1 1/1 2/1 3/1300350400450500550600650

Basis Points Basis PointsBasis Points

Source: Merrill Lynch, JP Morgan

Merrill Lynch HighYield Bond Index OAS

EMBI+

Investment Grade Corporate Debt SpreadNovember 1, 2003 - March 12, 2004

High Yield and EMBI+ SpreadsNovember 1, 2003 - March 12, 2004

1/28FOMC

12/9FOMC

Brazilian componentof EMBI+

90

95

100

105

110

11/1 12/1 1/1 2/1 3/190

95

100

105

110Basis Points

Investment GradeCorporate IndexOAS

12/9FOMC

1/28FOMC

Source: Lehman Brothers

Source: Barclays

March 16, 2004 96 of 107

Select Foreign Currencies Versus U.S. DollarNovember 1, 2003 - March 12, 2004

Index:100 =11/1/03

Index:100 = 11/1/03

85

90

95

100

105

11/03 12/03 1/04 2/04 3/0485

90

95

100

105

British Pound

Canadian Dollar

Australian Dollar

Euro

Japanese Yen

12/9FOMC

1/12 Trichetcomments oneuro

U.S. DollarDepreciation

IMM Commitment of Traders Report:Net Non-Commercial Positions in the Yen and Euro against the Dollar

September 2, 2003 - March 12, 2003 Thousands of ContractsThousands of Contracts

-50

-25

0

25

50

75

9/03 10/03 11/03 12/03 1/04 2/04 3/04-50

-25

0

25

50

75

Yen

Euro

1/28FOMC

2/7G7 meeting

ShortDollar

LongDollar

Page 3

-50

0

50

100

150

200

11/03 12/03 1/04 2/04 3/04-50

0

50

100

150

200

Interest Rate Differentials: Select 3-MonthGovernment Yields Less U.S. Treasuries Yields

November 1, 2003 - March 12, 2004

Interest Rate Differentials: Select 10-YearGovernment Yields Less U.S. Treasury Yields

November 1, 2003 - March 12, 2004Basis PointsBasis PointsBasis Points Basis Points

50

100

150

200

250

300

350

400

450

500

11/03 12/03 1/04 2/04 3/0450

100

150

200

250

300

350

400

450

500

Australia

Great Britain

Canada

Germany

Australia

Canada

Germany

Great Britain

March 16, 2004 97 of 107

Page 4

0

4

8

12

16

12/1/2003 12/15/2003 12/29/2003 1/12/2004 1/26/2004 2/9/2004 2/23/2004 3/8/2004104

106

108

110

112

114

Japanese Yen Versus U.S. DollarDecember 1, 2003 - March 12, 2004

Yen per Dollar$ Billions

Japanese Interventionin the IntermeetingPeriod: $69.7 bn

12/9FOMC

1/28FOMC

DailyIntervention

(LHS)

Dollar-Yen (RHS)

Select Foreign Currencies Versus U.S. DollarIntra-day Trading on March 5, 2003

Index:100 = Midnight 03/05

Index:100 = Midnight 03/05

98

99

100

101

0 2.5 5 7.5 10 12.5 15 17.598

99

100

101

British Pound

Canadian DollarAustralian Dollar

Euro

Japanese Yen

8:30Non-Farm Payroll

Data Release

U.S. DollarDepreciation

Time of Day

12:00 AM 2:30 5:00 7:30 10:00 12:30 PM 3:00 5:30

80

100

120

140

160

180

200

5/03 7/03 9/03 11/03 1/04 3/0480

100

120

140

160

180

200

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

5/03 7/03 9/03 11/03 1/04 3/040.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Japanese Equity IndicesMay 1, 2003 - March 12, 2004

Index100=5/1/2003

10-Year Japanese Sovereign Yield May 1, 2003 - March 12, 2004

Index100=5/1/2003 Percent Percent

Topix BankSub-Index

Topix

10-Year Japanese Govt.Bond Yield

March 16, 2004 98 of 107

Appendix 2: Materials used by Mr. Reinhart

March 16, 2004 99 of 107

Treasury Yield Curve Slope

Ten-Year Less Three-Month Yield .---------- One-Year Forward Rate Ending Ten Years Ahead Less One-Year Yield

Daily

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Percent

March 16, 2004 100 of 107

Appendix 3: Materials used by Mr. Reinhart

March 16, 2004 101 of 107

Exhibit 1Policy Expectations

Mar. July Nov. Mar. July Nov. Mar.2004 2005 2006

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Percent

March 15, 2004January 27, 2004

Expected Federal Funds Rates*

*Estimates from federal funds and eurodollar futures, with an allowance for term premia and other adjustments.

5 10 150.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16Probability

March 15, 2004January 27, 2004

Probability Distribution of Timeto the Beginning of Tightening

Months Ahead

0

1

2

3

4

5

6

7

8

9

10

ResponsesPrimary Dealer Survey Results:Date of Onset of Tightening

2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 Beyond2005Q2

March FOMCJanuary FOMC

Date of First Tightening

Jan. May Aug. Dec. Apr. Aug. Dec.2002 2003 2004

0

50

100

150

200

250

300Basis PointsEurodollar Implied Volatility*

*Eurodollar volatility is calculated on a notional contract with 120 days to expiration.

-40

-30

-20

-10

0

10

20

30

Basis points

Effect of Policy ActionsEffect of Policy Statements

Estimated Effects on the Two-Year Treasury Yield of FOMC Policy Actions and Statements

Note. Effect of policy actions is estimated by regressing the change in the on-the-run two-year Treasury yield from 15 minutes before to 1 hour after theFOMC decision on the monetary policy surprise measured from federal funds futures. Effect of policy statement is measured by the residual from the regression.

18-M

ay-9

9

30-J

un-9

9

24-A

ug-9

9

5-O

ct-9

9

16-N

ov-9

9

21-D

ec-9

9

2-F

eb-0

0

21-M

ar-0

0

16-M

ay-0

0

28-J

un-0

0

22-A

ug-0

0

3-O

ct-0

0

15-N

ov-0

0

19-D

ec-0

0

3-Ja

n-01

31-J

an-0

1

20-M

ar-0

1

18-A

pr-0

1

15-M

ay-0

1

27-J

un-0

1

21-A

ug-0

1

2-O

ct-0

1

6-N

ov-0

1 11-D

ec-0

1

30-J

an-0

2

19-M

ar-0

2

7-M

ay-0

2

26-J

un-0

2

13-A

ug-0

2

24-S

ep-0

2

6-N

ov-0

2

10-D

ec-0

2

29-J

an-0

3

18-M

ar-0

3

6-M

ay-0

3

25-J

un-0

3

12-A

ug-0

3

16-S

ep-0

3

28-O

ct-0

3

9-D

ec-0

3

28-J

an-0

4

March 16, 2004 102 of 107

Table 1: FOMC Statement Alternatives as of March 11

January FOMC Alternative A Alternative B Alternative C

PolicyDecision

The Federal Open Market Committee decidedtoday to keep its target for the federal funds rateat 1 percent.

Unchanged Unchanged Unchanged

Rationale

The Committee continues to believe that anaccommodative stance of monetary policy,coupled with robust underlying growth inproductivity, is providing important ongoingsupport to economic activity.

Unchanged Unchanged Unchanged

The evidence accumulated over the intermeetingperiod confirms that output is expanding briskly.

The evidence accumulated over theintermeeting period indicates thatoutput is continuing to expandbriskly.

The evidence accumulatedover the intermeeting periodindicates that output iscontinuing to expand briskly.

The evidence accumulated over the intermeetingperiod indicates that output is continuing toexpand briskly.

Although new hiring remains subdued, otherindicators suggest an improvement in the labormarket.

New hiring has been disappointing and resource utilization generallyappears likely to remain somewhatbelow levels consistent with theeconomy operating at itsproductive potential for some time.

Although new hiring hasbeen disappointing, otherindicators suggest continuedimprovement in the labormarket.

Although new hiring remains subdued, otherindicators suggest continued improvement in thelabor market.

Increases in core consumer prices are muted andexpected to remain low. Unchanged Unchanged

To date, increases in core consumer prices havebeen muted, and inflation expectations remaincontained.

Assessment of

Risks

The Committee perceives that the upside anddownside risks to the attainment of sustainablegrowth for the next few quarters are roughlyequal.

Unchanged Unchanged Unchanged

The probability of an unwelcome fall in inflationhas diminished in recent months and now appearsalmost equal to that of a rise in inflation.

The probability, though minor, ofan unwelcome fall in inflation hasdiminished in recent months but likely exceeds that of a rise ininflation.

UnchangedThe probability of a rise in inflation about equalsthat of an unwelcome decline in inflation.

With inflation quite low and resource use slack,the Committee believes that it can be patient inremoving its policy accommodation.

Unchanged UnchangedThe Committee recognizes that the stance ofmonetary policy has been quite accommodativefor some time. Nonetheless, with inflation lowand resource use slack, the Committee believesthat it can still be patient in removing its policyaccommodation.

March 16, 2004 103 of 107

Exhibit 2Alternative B

Changes in Financial ConditionsChange since

Jan. 27

Two-Year TreasuryTen-Year TreasuryTen-Year TIISTen-Year AATen-Year BBB

WilshireYen/DollarEuro/Dollar

--basis points--

--percent--

-14-33-35-33-31

-3.44.73.1

June Aug. Oct. Dec. Feb.2003 2004

0

20

40

60

80

Basis Points(June 2, 2003 = 0)

Economic News Index*

*Estimated cumulative impact of economic releases on two-yearTreasury yield.

"With inflation quite low and resource

use slack, the Committee believes that it

can be patient in removing its

policy accommodation."

January Statement

0

1

2

3

4

5

6

7

H1 H2 H1 H2 H1 H22003 2004 2005

Real GDP Growth Percent

●

●

Rationale

The evidence accumulated over the intermeeting period indicates thatoutput is continuing to expand at a solid pace.

Although job losses have slowed, new hiring has lagged.

Statement Language Changes

March 16, 2004 104 of 107

Exhibit 3Alternative A

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

-5

0

5

10Percent

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

-5

0

5

10Percent

Jan.FOMC

Mar.FOMC

GDP Gap

Nonfarm Payrolls

-200

-150

-100

-50

0

50

100

150

Thousands

Mar. Jun. Sep. Dec.2003 2004

0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25

January 27, 2004 (Dotted Line)

March 15, 2004 (Solid Bars)

0

5

10

15

20

25

30

35

40

45Percent

Implied Distribution of the Federal Funds RateAbout Six Months Ahead*

*Based on the distribution of the three-month eurodollar rate five months ahead (adjusted for a term premium), as implied by options on eurodollar futures contracts.

Statement Language Changes

Rationale

The evidence accumulated over the intermeeting period indicates that output iscontinuing to expand at a solid pace.

● The evidence accumulated over the intermeeting period indicates that output iscontinuing to expand at a s

● New hiring has lagged and resource utilization generally appears likelyto remain somewhat below levels consistent with the economy operating at itsproductive potential for some time.

Risk Assessment

● The probability, though minor, of an unwelcome fall in inflation has diminishedin recent months but likely exceeds that of a rise in inflation.

March 16, 2004 105 of 107

Exhibit 4Alternative C

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004-2

-1

0

1

2

3

4

5

6Percent

Note: The shaded range represents the maximum and the minimum values each quarter of four estimates of the equilibriumreal federal funds rate based on a statistical filter and the FRB/US model. Real federal funds rates employ a four-quarter movingaverage of core PCE inflation as a proxy for inflation expectations, with the staff projection used for 2004Q1.

Quarterly

Real Federal Funds Rate

-2

-1

0

1

2

3

4

5

6

Actual Real Funds Rate

TIIS-Based Estimate

Historical Average:2.67 (1966Q1-2003Q4)

● Current Rate

1988 1991 1994 1997 2000 2003

2

3

4

5

6Percent

1988 1991 1994 1997 2000 2003

2

3

4

5

6PercentBlue Chip Long Range CPI Forecast*

Semi-annual

* Forecasts of CPI inflation 5 to 10 years ahead.The upper and lower bounds of the shaded region are averagesof the ten highest and lowest individual forecasts, respectively.

Rationale

The evidence accumulated over the intermeeting period indicates that output is continuing to expandat a solid pace.

Although new hiring has lagged, other indicators suggest an improvement in the labor market.

To date, increases in core consumer prices have been muted, and inflation expectations remaincontained.

Risk Assesment

The probability of a rise in inflation about equals that of an unwelcome decline in inflation.

The Committee recognizes that the stance of monetary policy has been quite accommodative for sometime. Nonetheless, with inflation low and resource use slack, the Committee believes that it can still bepatient in removing its policy accommodation.

●

●

●

●

●

Statement Language Changes

1988 1991 1994 1997 2000 2003

2.0

2.5

3.0

3.5

4.0Percent

1988 1991 1994 1997 2000 2003

2.0

2.5

3.0

3.5

4.0Percent

Blue Chip Long Range Real GDPGrowth Forecast*Semi-annual

* Forecasts of real GDP growth 5 to 10 years ahead.The upper and lower bounds of the shaded region are averagesof the ten highest and lowest individual forecasts, respectively.

March 16, 2004 106 of 107

Table 1: FOMC Statement Alternatives: Revised as of March 15

January FOMC Alternative A Alternative B Alternative C

PolicyDecision

The Federal Open Market Committee decidedtoday to keep its target for the federal funds rateat 1 percent.

Unchanged Unchanged Unchanged

Rationale

The Committee continues to believe that anaccommodative stance of monetary policy,coupled with robust underlying growth inproductivity, is providing important ongoingsupport to economic activity.

Unchanged Unchanged Unchanged

The evidence accumulated over the intermeetingperiod confirms that output is expanding briskly.

The evidence accumulated over theintermeeting period indicates thatoutput is continuing to expand at asolid pace.

The evidence accumulatedover the intermeeting periodindicates that output iscontinuing to expand at asolid pace.

The evidence accumulated over the intermeetingperiod indicates that output is continuing toexpand at a solid pace.

Although new hiring remains subdued, otherindicators suggest an improvement in the labormarket.

New hiring has lagged andresource utilization generallyappears likely to remain somewhatbelow levels consistent with theeconomy operating at itsproductive potential for some time.

Although job losses haveslowed, new hiring haslagged.

Although new hiring has lagged, otherindicators suggest an improvement in the labormarket.

Increases in core consumer prices are muted andexpected to remain low. Unchanged Unchanged

To date, increases in core consumer prices havebeen muted, and inflation expectations remaincontained.

Assessment of

Risks

The Committee perceives that the upside anddownside risks to the attainment of sustainablegrowth for the next few quarters are roughlyequal.

Unchanged Unchanged Unchanged

The probability of an unwelcome fall in inflationhas diminished in recent months and now appearsalmost equal to that of a rise in inflation.

The probability, though minor, ofan unwelcome fall in inflation hasdiminished in recent months but likely exceeds that of a rise ininflation.

UnchangedThe probability of a rise in inflation about equalsthat of an unwelcome decline in inflation.

With inflation quite low and resource use slack,the Committee believes that it can be patient inremoving its policy accommodation.

Unchanged UnchangedThe Committee recognizes that the stance ofmonetary policy has been quite accommodativefor some time. Nonetheless, with inflation lowand resource use slack, the Committee believesthat it can still be patient in removing its policyaccommodation.

March 16, 2004 107 of 107