April 27–28, 2010 Authorized for Public Release 173 of 206 ... · 4/28/2010 · (11) 10-Yr...

Appendix 1: Materials used by Mr. Sack

April 27–28, 2010 173 of 206Authorized for Public Release

Material for

FOMC Presentation:Financial Market Developments and Desk Operations

Brian Sack

April 27, 2010

Class II FOMC - Restricted FR


Class II FOMC – Restricted FR Exhibit 1

Source: Bloomberg

30

40

50

60

70

80

90

100

110

08/01/08 01/01/09 06/01/09 11/01/09 04/01/10

Indexed to 100= 8/1/08

S&P 500MSCI World

FOMC

(1) Equity Prices

0

200

400

600

800

1000

1200

0

500

1000

1500

2000

2500

08/01/08 01/01/09 06/01/09 11/01/09 04/01/10

BPSBPS

High Yield (LHS)Investment Grade (RHS)

FOMC

(3) Corporate Bond Spreads

Source: Bank of America

(4) CMBS Spreads

0

500

1000

1500

2000

2500

3000

3500

08/01/08 01/01/09 06/01/09 11/01/09 04/01/10

BPSJunior Mezzanine Super Senior

FOMC

Source: JP Morgan

0

200

400

600

800

1000

1200

1400

Portugal Ireland Greece Spain

BPS

Intermeeting Change

3/15/2010 Level

*2-yr yields. Source: Bloomberg

(6) Peripheral Euro-Area Yield Spreads to German Debt*

-20

-15

-10

-5

0

5

10

15

20

25

30

GS DB UBS JPM BAC WFC MS C Regional Bank Index

Percent

Change from 4/15/10 to 4/26/10

Change from 3/15/10 to 4/15/10

Source: Bloomberg

(5) Bank Equities

Source: Federal Reserve Board of Governors. Last observation is 04/21/10.

-4

-2

0

2

4

6

8

10

12

01/01/90 01/01/95 01/01/00 01/01/05 01/01/10

BPS (2) Equity Risk Premium


-50

0

50

100

150

200

08/01/08 01/01/09 06/01/09 11/01/09 04/01/10

BPS

2-yr 10-yrFOMC

(10) Swap Spreads

Source: Bloomberg


0.5

1.5

2.5

3.5

4.5

08/01/08 01/01/09 06/01/09 11/01/09 04/01/10

Percent

2-yr 5-yr 10-yr FOMC

(9) Treasury Yields

Source: Bloomberg

2010 Q2

2011Q2

2012Q2

All 23% 24% 23%

Some 11% 26% 34%

None 66% 50% 43%

(12) Average Probability of Federal Reserve Treasury Redemption Policies

Tre

asu

ries

Red

eem

ed

Source: Federal Reserve Bank of New York Dealer Policy Survey

0

5

10

15

20

25

30

35

40

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Percent

Source: Federal Reserve Bank of New York Policy Survey, including responses from primary dealers and buy-side firms

(8) Average Probability Distribution of First Policy Rate Increase

0.0

0.5

1.0

1.5

2.0

2.5

04/01/10 08/01/10 12/01/10 04/01/11 08/01/11 12/01/11

Percent

4/23/10

3/15/10

(7) Implied Federal Funds Rate

Source: Federal Reserve Bank of New York


-50

-30

-10

10

30

50

70

90

110

130

150

08/01/05 08/01/06 08/01/07 08/01/08 08/01/09

BPS

FOMC

(11) 10-Yr Treasury Term Premium



-50

-25

0

25

50

75

100

01/01/09 06/01/09 11/01/09 04/01/10

BPS

OAS to Treasury

OAS to Swap

End of the LSAPs

(15) MBS Spreads*

* Fannie Mae fixed-rate current coupon spreads; Source: Barclays Capital

0

5

10

15

20

25

30

35

40

12/10/08 04/10/09 08/10/09 12/10/09 04/10/10

$ Billions

Agency

MBS


(13) Weekly Pace of Purchases

(17) Probability of Asset Sales


0

10

20

30

40

50

60

$50 Bln Sales/Year

$150 Bln Sales/Year

$300 Bln Sales/Year

BPS

10-yr Treasury Yield

MBS Yield

(18) Impact on Yields from MBS Sales


-120

-100

-80

-60

-40

-20

0

Maximum Effect Current Effect Effect in 6 Months

BPS

10-yr Treasury Yield

MBS Yield

(16) Impact on Yields from Purchase Programs


Time Horizon

2 Yrs 5 Yrs

Treasuries 15% 25%

Agencies 20% 50%

MBS 25% 70%

0

200

400

600

800

1000

1200

1400

1600

1800

2000

01/01/08 08/01/08 03/01/09 10/01/09

$ Billions (14) MBS Weekly Trading Volumes*

*4-wk moving average. Source: FR2004 (1/2 interdealer + customer)



0.00

0.05

0.10

0.15

0.20

0.25

10/01/09 12/01/09 02/01/10 04/01/10

Percent

Treasury GC

Fed Funds

(19) Treasury Repo and Fed Funds Rates


0.00

0.05

0.10

0.15

0.20

0.25

400 600 800 1000 1200

Percent

Excess Reserves, $ Billions

1/2/09-3/2/10

3/3/10-4/23/10

(20) Excess Reserves and the Fed Funds Rate


1.47

2.24

2.47

2.94

3.17

0 1 2 3 4

Increase in Primary Credit Rate

GSE Delinquent Buyouts

Decreases in Reserves

Increases in Treasury Supply

Announcement of SFP

*Ratings were constructed by assigning the following values: Not important=1, Somewhat Important=2, Important =3, Very Important=4. The weighted average was then taken to construct the average rating.

Source: Federal Reserve Bank of New York Dealer Policy Survey

(22) Factors Leading to Increase in Fed Funds Rate*

0.05

0.10

0.15

0.20

0.25

02/01/10 02/19/10 03/09/10 03/27/10 04/14/10

Percent

May Contract

April Contract

March Contract

(21) Fed Funds Futures Rates

Source: Bloomberg


Appendix 2: Materials used by Mr. Madigan


Class I FOMC – Restricted Controlled (FR)

Material for Briefing on Strategies for Asset Sales and Redemptions Brian Madigan April 27, 2010


Table 1: Possible Longer-Run Approaches to Redemptions and Asset Sales

Characteristics Assumed in the Staff Analysis

Treasury

Redemptions

Begin

Sales of agency-related securities

Conditionality

of Sales

Average pace

$billion/month Start Finish

Option 1: No asset sales None $0 N/A N/A N/A

Option 2: Asset sales after increase in target

May 3 $15 One quarter after target increase

Five years after sales commence

Moderate

Option 3: Conditional pace of sales

May 3 $15 Before increase in the target, but

increase in target under Option 3

would be later than under baseline.

Five years after sales commence, depending on developments

Strong

Option 4: Reverse taper May 3 $5 in 2011

$10 in 2012

$20 in 2013‐15

January 2011 December 2015 Virtually none

Option 5: Rapid sales May 3 $30 July 2010 June 2013 Limited


Exhibit 2Balance Sheets

Greenbook-consistent Projections

2010 2012 2014 2016 2018 2020 750

1000

1250

1500

1750

2000

2250

2500Option 1Option 2Option 3Option 4Option 5Option 6*

SOMA holdings

$ BillionsMonthly

* Redemptions for Treasury and agency securities, redemptions and prepayments for agency mortgage-backed securities; no asset sales.

2010 2012 2014 2016 2018 2020 -250

0

250

500

750

1000

1250

1500Option 1Option 2Option 3Option 4Option 5Option 6

MBS holdings

$ BillionsMonthly

2010 2012 2014 2016 2018 2020 0

250

500

750

1000

1250

1500

1750


Treasury holdings

$ BillionsMonthly

2010 2012 2014 2016 2018 2020 -250

0

250

500

750

1000

1250


Reserve balances

$ BillionsMonthly


Exhibit 3Macroeconomic Consequences Under Alternative

Balance Sheet StrategiesGreenbook-consistent Projections

2010 2011 2012 2013 2014 2015 20160

1

2

3

4

5

Option 1Option 2Option 5Option 6*

Federal funds rate

Percent

*Redemptions for Treasury and agency securities, redemptions and prepayments for agency mortgage-backed securities; no asset sales.

2010 2011 2012 2013 2014 2015 20163.0

3.5

4.0

4.5

5.0

5.5

6.0Option 1Option 2Option 5Option 6

10-year Treasury interest rate

Percent

2010 2011 2012 2013 2014 2015 20165.0

5.5

6.0

6.5

7.0

7.5


30-year mortgage rate

Percent

2010 2011 2012 2013 2014 2015 20162.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5


Real GDP growth*

Percent

*Q4/Q4 growth rate

2010 2011 2012 2013 2014 2015 2016 4

5

6

7

8

9

10Option 1Option 2Option 5Option 6

Unemployment rate

Percent

2010 2011 2012 2013 2014 2015 20160.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

Option 1Option 2Option 5Option 6

Core PCE inflation*

Percent

*Q4/Q4 growth rate


Appendix 3: Materials used by Mr. Madigan



Material for Briefing on FOMC Participants’ Economic Projections Brian Madigan April 27, 2010


2

1

+_0

1

2

3

4

5

Percent

Exhibit 1. Central tendencies and ranges of economic projections, 2010–12 and over the longer run

Change in real GDP

Range of projections

Actual

2005 2006 2007 2008 2009 2010 2011 2012 Longerrun

Central tendency of projections

5

6

7

8

9

10

Percent

Unemployment rate

2005 2006 2007 2008 2009 2010 2011 2012 Longerrun

1

2

3

Percent

PCE inflation

2005 2006 2007 2008 2009 2010 2011 2012 Longerrun

1

2

3

Percent

Core PCE inflation

2005 2006 2007 2008 2009 2010 2011 2012

NOTE: Definitions of variables are in the notes to table 1. The data for the actual values of the variables are annual.


2010 2011 2012 Longer Run

Central Tendency 3.2 to 3.7 3.4 to 4.5 3.5 to 4.5 2.5 to 2.8 January projections 2.8 to 3.5 3.4 to 4.5 3.5 to 4.5 2.5 to 2.8Range 2.7 to 4.0 3.0 to 4.6 2.8 to 5.0 2.4 to 3.0 January projections 2.3 to 4.0 2.7 to 4.7 3.0 to 5.0 2.4 to 3.0Memo: Greenbook 3.5 4.4 4.7 2.5 January Greenbook 3.6 4.7 4.5 2.5

2010 2011 2012 Longer Run

Central Tendency 9.1 to 9.5 8.1 to 8.5 6.6 to 7.5 5.0 to 5.3 January projections 9.5 to 9.7 8.2 to 8.5 6.6 to 7.5 5.0 to 5.2

Range 8.6 to 9.7 7.2 to 8.7 6.4 to 7.7 5.0 to 6.3 January projections 8.6 to 10.0 7.2 to 8.8 6.1 to 7.6 4.9 to 6.3

Memo: Greenbook 9.3 8.2 6.7 5.2 January Greenbook 9.5 8.2 6.1 5.2

2010 2011 2012 Longer Run

Central Tendency 1.2 to 1.5 1.1 to 1.9 1.2 to 2.0 1.7 to 2.0 January projections 1.4 to 1.7 1.1 to 2.0 1.3 to 2.0 1.7 to 2.0Range 1.1 to 2.0 0.9 to 2.4 0.7 to 2.2 1.5 to 2.0 January projections 1.2 to 2.0 1.0 to 2.4 0.8 to 2.0 1.5 to 2.0Memo: Greenbook 1.3 1.0 1.1 2.0 January Greenbook 1.4 1.1 1.3 2.0

2010 2011 2012

Central Tendency 0.9 to 1.2 1.0 to 1.5 1.2 to 1.6 January projections 1.1 to 1.7 1.0 to 1.9 1.2 to 1.9Range 0.7 to 1.6 0.6 to 2.4 0.6 to 2.2 January projections 1.0 to 2.0 0.9 to 2.4 0.8 to 2.0Memo: Greenbook 0.9 0.9 1.1 January Greenbook 1.2 1.1 1.2NOTE: See Table 1 for variable definitions

Exhibit 2: Economic Projections for 2010-2012 and Longer Run

Real GDP Growth

Unemployment Rate

PCE Inflation

Core PCE Inflation


2

4

6

8

10

12

14

16

18

Number of participants

Exhibit 3. Risks and Uncertainty in Economic Projections

Uncertainty about GDP Growth

January projections

Lower Similar Higher

April projections

2

4

6

8

10

12

14

16

18


Uncertainty about PCE Inflation

Lower Similar Higher

2

4

6

8

10

12

14

16

18


Risks to GDP Growth

January projections

Downside Balanced Upside

April projections

2

4

6

8

10

12

14

16

18


Risks to PCE Inflation

Downside Balanced Upside


Appendix 4: Materials used by Mr. Sheets


6.06.4

6.7 6.8 6.8 7.17.6

12.5

6.0

8.0

10.0

12.0

14.0

Europe: Average Residual Maturity of Outstanding Government DebtYears

In 2007, 98.5 percent of Greek debt issuance had maturity

of at least 5 years.

0.0

2.0

4.0

Germany Portugal Spain Ireland France Italy Greece United Kingdom* Average residual maturity of marketable debt, as of April 15, 2010.


Appendix 5: Materials used by Mr. Sack


FEDERAL RESERVE SYSTEM

Date: April 28, 2010

To: Federal Open Market Committee

From: William English, Brian Madigan, and Brian Sack

Subject: Redemption of Treasury Securities Under Alternative Approaches

In yesterday’s discussion of the redemption strategy for the Federal Reserve’s holdings of Treasury securities, several FOMC members raised the possibility of running down our holdings of longer-term securities while continuing to reinvest in shorter-term issues. The table below summarizes the amount of redemptions achieved under several potential strategies along these lines. Cumulative Redemptions of Treasury Securities Under Alternative Approaches ($ Billions)

2010 2011 2012 2013

Full Redemption Strategy 60 130 268 330

Redeem Holdings of Longer-term Securities Original Maturity of 3 Years or More 16 58 192 254 Original Maturity of 5 Years or More 12 46 105 158 Original Maturity of 7 Years or More 3 8 18 34

Reinvest Maturing Holdings into Short-term Instruments Invest in Bills at Auction 39 99 216 264 Invest in Bills and 2-yr Notes at Auction 16 30 102 123 Invest in Bills, 2- and 3-yr Notes at Auction 0 0 0 0 Invest in Bills in Secondary Market 0 0 0 0

All figures are year-end amounts assuming redemptions begin May 3.


Appendix 6: Materials used by Chairman Bernanke


Class II FOMC – Restricted (FR)

Comparison of Taylor Rule Prescriptions

‐10.0

‐8.0

‐6.0

‐4.0

‐2.0

0.0

2.0

4.0

6.0

8.0

10.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Inflation Measure: CPI or GDP Deflator

Fed Funds RateTaylor (1993) GDP DeflatorTaylor (1999) GDP DeflatorTaylor (1993) CPITaylor (1999) CPI

Percent

‐10.0

‐8.0

‐6.0

‐4.0

‐2.0

0.0

2.0

4.0

6.0

8.0

10.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Inflation Measure: Core CPI or Core PCE

Fed Funds RateTaylor (1993) Core PCETaylor (1999) Core PCETaylor (1993) Core CPITaylor (1999) Core CPI

Percent


Class II FOMC – Restricted (FR)

The Unemployment Gap and the Commencement of Tightening

Net Changes in Nonfarm Payrolls

Dates Millions Percent Nov. 1982 to June 1983 1.24 1.4 June 1992 to Feb. 1994 4.04 3.7 June 2003 to June 2004 1.60 1.2 Oct. 2009 to March 2010 0.12 0.1

The Recent Evolution of Consumer Prices and M2 (Annualized Changes through March 2010, in Percent)

CPI Core CPI

CPI ex. OER

Core CPI ex. OER

M2

3-Month 0.9 -0.2 1.5 0.1 -1.5 6-Month 1.7 0.6 2.4 1.1 1.3

12-Month 2.3 1.1 3.1 1.6 1.5

Nov‐824.3

Jun‐922.3

Jun‐031.4

Oct‐094.9

June‐83 February‐94 June‐04

‐2.0

‐1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Real Time

Ex Post

3.7

0.0

1.20.7

Percent


Appendix 7: Materials used by Mr. English


Class I FOMC – Restricted-Controlled FR Material for

FOMC Briefing on Monetary Policy Alternatives Bill English April 27-28, 2010



Page 1 of 9

March FOMC Statement

1. Information received since the Federal Open Market Committee met in January suggests

that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

2. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

3. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

4. In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.



Page 2 of 9

April FOMC Statement—Alternative A

1. Information received since the Federal Open Market Committee met in March suggests

that economic activity has continued to strengthen and that the labor market is showing signs of improving. Although growth in household spending has picked up recently, it is likely to remain constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth.

2. Although longer-term inflation expectations have remained stable, recent data suggest inflation has been trending down in response to substantial resource slack. The Committee anticipates that inflation is likely to be quite subdued for some time.

3. To promote a more robust economic recovery in a context of price stability, the

Committee anticipates maintaining the target range for the federal funds rate at 0 to ¼ percent for an extended period—until economic conditions such as appreciably higher rates of resource utilization, increasing inflation pressures, or rising inflation expectations warrant a less accommodative monetary policy. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

4. [To gradually reduce the size of the Federal Reserve’s balance sheet and return it

to a more normal composition over time, the Committee will maintain its approach of not reinvesting the proceeds of maturing agency debt and payments on mortgage-backed securities held by the System Open Market Account. The Committee is continuing to roll over maturing Treasury securities.]

5. In light of improved functioning of financial markets, the Federal Reserve has closed all

but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.



Page 3 of 9

April FOMC Statement—Alternative B 1. Information received since the Federal Open Market Committee met in March suggests

that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

2. With substantial resource slack continuing to restrain cost pressures and longer-term

inflation expectations stable, inflation is likely to be subdued for some time. 3. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent

and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

4. [To gradually reduce the size of the Federal Reserve’s balance sheet and return it to a more normal composition over time, the Committee will maintain its approach of not reinvesting the proceeds of maturing agency debt and payments on mortgage-backed securities held by the System Open Market Account. The Committee is continuing to roll over maturing Treasury securities.

OR

To gradually reduce the size of the Federal Reserve’s balance sheet over time, the Committee will maintain its approach of not reinvesting the proceeds of maturing agency debt and payments on mortgage-backed securities held by the System Open Market Account. In addition, on May 3 the Committee will stop reinvesting the proceeds of maturing Treasury securities.]





Page 4 of 9

April FOMC Statement—Alternative C 1. Information received since the Federal Open Market Committee met in March

indicates that economic activity has continued to strengthen and that the labor market is improving. Though investment in nonresidential structures is declining, housing starts have edged up, growth in household spending has increased, and business spending on equipment and software has risen significantly. While bank lending continues to contract, financial market conditions have become more supportive of economic growth. With economic recovery under way, the Committee anticipates a gradual return to higher levels of resource utilization.

2. Although energy prices have risen on balance in recent months, inflation has remained subdued. The Committee will adjust the stance of monetary policy as necessary over time to ensure that longer-term inflation expectations remain well anchored and that inflation outcomes are consistent with price stability.

3. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and now anticipates that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for some time.

4. The Committee will maintain its approach of not reinvesting the proceeds of maturing agency debt and payments on mortgage-backed securities held by the System Open Market Account. In addition, on May 3 the Committee will stop reinvesting the proceeds of maturing Treasury securities. To further reduce the size of the Federal Reserve’s balance sheet, and to return the balance sheet to a more normal composition, the Committee anticipates that it will soon begin gradual sales of agency debt and mortgage-backed securities. The timing and pace of such sales will depend on evolving economic and financial conditions. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.





Page 5 of 9

Table 1: Overview of Alternatives for the April 28 FOMC Statement

March Statement

April Alternatives

A B CEconomic Activity

Recent Developments

has continued to strengthen




Labor Market

is stabilizing; high unemployment;

employers remain reluctant to add to

payrolls

is showing signs of improving;

high unemployment; employers remain reluctant to add to

payrolls

is beginning to improve; high unemployment;

employers remain reluctant to add to

payrolls

is improving

Outlook

recovery likely to be moderate for a time;

gradual return to higher levels of resource

utilization

---

recovery likely to be moderate for a time;

gradual return to higher levels of resource

utilization

recovery under way; gradual return to higher

levels of resource utilization

Inflation

Recent Developments

substantial slack is restraining cost

pressures; stable inflation expectations

stable inflation expectations but recent data suggest inflation is

trending down in response to slack

substantial slack is restraining cost pressures;

stable inflation expectations

energy prices have risen on balance in recent months but inflation

remains subdued

Outlook likely to be subdued

for some time likely to be quite subdued

for some time likely to be subdued

for some time

policy adjustments will ensure inflation outcomes consistent with price stability

Federal Funds Rate Target

Intermeeting Period

0 to ¼ percent 0 to ¼ percent 0 to ¼ percent 0 to ¼ percent

Forward Guidance

economic conditions are likely to warrant

exceptionally low levels for an extended period

anticipate maintaining the 0 to ¼ percent target range for an extended

period—until economic conditions such as . . .

warrant a less accommodative policy


exceptionally low levels for an extended period


exceptionally low levels for some time

Reinvestment and Sales of SOMA Assets

Approach

[do not reinvest proceeds of agency debt and MBS but continue to roll over

maturing Treasuries]

[do not reinvest proceeds of agency debt and MBS but continue to roll over

maturing Treasuries] OR

[no reinvestment]

no reinvestment; “Committee anticipates that it will soon begin gradual sales of agency

debt and MBS”



Page 6 of 9

MARCH 2010 FOMC DIRECTIVE

The Federal Open Market Committee seeks monetary and financial conditions

that will foster price stability and promote sustainable growth in output. To further

its long-run objectives, the Committee seeks conditions in reserve markets consistent

with federal funds trading in a range from 0 to ¼ percent. The Committee directs the

Desk to complete the execution of its purchases of about $1.25 trillion of agency MBS

and of about $175 billion in housing-related agency debt by the end of March. The

Committee directs the Desk to engage in dollar roll transactions as necessary to

facilitate settlement of the Federal Reserve’s agency MBS transactions. The System

Open Market Account Manager and the Secretary will keep the Committee informed

of ongoing developments regarding the System’s balance sheet that could affect the

attainment over time of the Committee’s objectives of maximum employment and

price stability.



Page 7 of 9

APRIL 2010 FOMC DIRECTIVE — ALTERNATIVE A





Desk to engage in dollar roll transactions as necessary to facilitate settlement of the

Federal Reserve’s agency MBS transactions. [To gradually reduce the size of the

Federal Reserve’s balance sheet and return it to a more normal composition

over time, the Committee directs the Desk to not reinvest the proceeds of

maturing agency debt and payments on mortgage-backed securities held by

the System Open Market Account.] 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.



Page 8 of 9

APRIL 2010 FOMC DIRECTIVE — ALTERNATIVE B






Federal Reserve’s agency MBS transactions. [To gradually reduce the size of the

Federal Reserve’s balance sheet and return it to a more normal composition

over time, the Committee directs the Desk to not reinvest the proceeds of

maturing agency debt and payments on mortgage-backed securities held by

the System Open Market Account. OR To gradually reduce the size of the

Federal Reserve’s balance sheet over time, the Committee directs the Desk to

not reinvest the proceeds of maturing Treasury and agency debt and payments

on mortgage-backed securities held by the System Open Market Account.]

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.



Page 9 of 9

APRIL 2010 FOMC DIRECTIVE — ALTERNATIVE C






Federal Reserve’s agency MBS transactions. To gradually reduce the size of the

Federal Reserve’s balance sheet over time, the Committee directs the Desk to

not reinvest the proceeds of maturing Treasury and agency debt and payments

on mortgage-backed securities held by the System Open Market Account. 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.


April 27–28, 2010 Authorized for Public Release 173 of 206 ... · 4/28/2010 · (11) 10-Yr...

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