Appendix 1: Materials used by Mr. Kos

November 10, 2004 93 of 107

1.50

2.00

2.50

3.00

3.50

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/81.50

2.00

2.50

3.00

3.50

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

Rates Implied by Traded Forward Rate AgreementsAugust 2, 2004 – November 8, 2004

LIBOR Fixing 3M Forward 6M Forward 9M Forward PercentPercent

10/8 Sept.NFP +96K

9/21 FOMC +25 bps

9/3 August NFP +144K

11/5 Oct.NFP +337

2.3

2.5

2.7

2.9

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/82.3

2.5

2.7

2.9

3.9

4.1

4.3

4.5

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/83.9

4.1

4.3

4.5

2-Year Treasury YieldAugust 2, 2004 – November 8, 2004

10-Year Treasury YieldAugust 2, 2004 – November 8, 2004

PercentPercent PercentPercent

10/27 Oil Begins Decline from $55

8/10 FOMC +25 bps

130

145

160

175

190

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/8130

145

160

175

190

Yield Spread between 2-and 10-Year Treasury NotesAugust 2, 2004 – November 8, 2004Basis Points Basis Points

10/8 Sept.NFP +96K

9/21 FOMC +25 bps

9/3 August NFP +144K

11/5 Oct.NFP +337

10/27 Oil Begins Decline from $55

8/10 FOMC +25 bps

10/8 Sept.NFP +96K

9/21FOMC

+25 bps

9/3 August NFP +144K

11/5 Oct.NFP +337

8/10 FOMC +25 bps

10/8 Sept.NFP +96K

9/21FOMC

+25 bps

9/3 August NFP +144K

11/5 Oct.NFP +337

8/10 FOMC +25 bps

November 10, 2004 94 of 107

Page 2

35

40

45

50

55

60

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/835

40

45

50

55

60

85

90

95

100

105

110

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/885

90

95

100

105

110

225

231

237

243

249

255

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/8225

231

237

243

249

255Basis Points $/Barrel $/Barrel

0

10

20

30

40

50

60

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/80

10

20

30

40

50

60

Fannie Mae 10-Year Debt PerformanceAugust 2, 2004 – November 8, 2004

vs. Swaps

Basis Points Basis Points

WTI Crude Oil FuturesAugust 2, 2004 – November 8, 2004

Front-MonthWTI Contract

Freddie Mac

Fannie Mae

Basis Points

10-Year TIPS Breakeven Inflation RateAugust 2, 2004 – November 8, 2004

84

88

92

96

100

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/884

88

92

96

100

Source: Lehman Brothers

Investment Grade Corporate Debt SpreadsAugust 2, 2004 – November 8, 2004

300

350

400

450

500

8/2 8/16 8/30 9/13 9/27 10/11 10/25 11/8300

350

400

450

500Basis Points Basis Points

High Yield and Emerging Market SpreadsAugust 2, 2004 – November 8, 2004

Source: Merrill Lynch & JP Morgan

Investment GradeCorporate Index OAS

High Yield Bond IndexOAS

EMBI+

Basis Points Basis Points

Twelfth-MonthWTI Contract

GSE Equity PerformanceAugust 2, 2004 – November 8, 2004

vs. Treasuries

S&P 500

Index:100 =8/2/04

Index:100 = 8/2/04

July 2014 TIPS

Source: Barclays

10/19 NSACPI +0.4

9/16 NSA CPI+0.1

9/21 FOMC +25 bps

9/21 FOMC +25 bps

9/21 FOMC +25 bps

9/27 OFHEO/FNMAAgreement

9/22 OFHEO Report on FNMA

9/27OFHEO/FNMAAgreement

9/22 OFHEO Report on FNMA

9/21 FOMC +25 bps

November 10, 2004 95 of 107

Page 3

85

90

95

100

105

9/1 9/21 10/11 10/2985

90

95

100

105

Select Foreign Currencies Against DollarSeptember 1, 2004 – November 8, 2004

Index:100 =9/1/04

Index:100 = 9/1/04

British Pound

Australian DollarJapanese Yen

EuroCanadian Dollar

Mexican Peso

Swiss FrancDollar Depreciation

Fed Commentary onCurrent Account Deficit

10/14 US Aug.Trade Balance

-$54B9/21 FOMC

+25 bps

7.77.87.98.08.18.28.38.4

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov7.77.87.98.08.18.28.38.4

Dollar-Yuan Exchange Value Implied by the NDF MarketJanuary 1, 2004 – November 8, 2004 Yuan/$Yuan/$

6-Month NDF

Spot Price

12-Month NDF

1-Month NDF

10/14 PBOC Tightens Monetary Policy

-6

-4

-2

0

2

South KoreanWon

Singapore Dollar Taiwan Dollar Indian Rupee Thai Baht Philippine Peso-6

-4

-2

0

2

Select Asian Currencies Against the DollarAugust 2, 2004 – November 8, 2004

PercentPercent

US Dollar Depreciation

US Dollar Appreciation

November 10, 2004 96 of 107

Appendix 2: Materials used by Mr. Ferguson

November 10, 2004 97 of 107

Table 1- Employment Performance by IndustryRelative

Performance Rank

(Worst to Best)

Industry Absolute Performance

Rank (Worst to Best)

1 Professional and Technical Services 6 2 Information 3 3 Durable Manufacturing 1 4 Construction 12 5 Transportation and Warehousing 5 6 Admin Support and Waste 14 7 Company Management 8 8 Arts, Entertainment and Recreation 11 9 Retail Trade 4 10 Utilities 10 11 Natural Resources and Mining 9 12 Real Estate and Leasing 13 13 Education 17 14 Nondurable Manufacturing 2 15 Wholesale Trade 7 16 Finance and Insurance 15 17 Other 16 18 Accommodations and Food Services 18

19 Health Care and Social Assistance 19

November 10, 2004 98 of 107

Table 4A. Job Creation Contribution to Industry Decrease in Job

Creation Rank

1 Manufacturing 2 Professional and Business Services 3 Retail Trade 4 Information 5 Leisure and Hospitality 6 Construction 7 Wholesale Trade 8 Financial Activities 9 Transportation and Warehousing 10 Education and Health Services 11 Natural Resources and Mining 12 Other 13 Utilities

Table 4B. Job Destruction Contribution to Industry

Decrease in Aggregate Job

Destruction Rank

1 Professional and Business Services 2 Construction 3 Information 4 Transportation and Warehousing 5 Manufacturing 6 Wholesale Trade 7 Leisure and Hospitality 8 Other 9 Utilities 10 Financial Activities 11 Retail Trade Natural 12 Education and Health Services 13 Resources and Mining

November 10, 2004 99 of 107

Chart 5. Relative Change in Value Added vs. Relative Change in Employment (2000-2002)

Value Added 1.4

1.3

1.2

1.1

1.0

0.9

0.8

0.7-

0.7

* P,4c*

R R * R RR*

R * R* R* R

0.8

**

* R

.'.'.'I''I'''I''I' ' ' ' ' ' ' ' ' I~ I'' , , I , , , , . , , , , . . . . . . .

0.9

Employment

R denotes restructuring industry

1

I

November 10, 2004 100 of 107

Chart 4.

Product

Relative Productivity Growth vs. Relative Change in Employment (2000-2002)

iv ity

1.3

1.2

1.1

1.0

0.9

0.8

0.7

0.7 0.8 0.9 1 1.1 1.2 1.3

Employment

R denotes restructuring industry

November 10, 2004 101 of 107

Appendix 3: Materials used by Mr. Reinhart

November 10, 2004 102 of 107

Strictly Confidential (FR) Class I - FOMC

.laedz foI

FOMC Briefing on Monetary Policy Alternatives

Vincent R. Reinhart November 10, 2004

November 10, 2004 103 of 107

Exhibit 1

Market Developments

Expected Federal Funds Rates* Percent4.5

November 9, 2004 September 20, 2004

3.5

3.0

2.5

2.0 . .. . . . . . . . . . . . . . . . . , 1.5

Nov. Feb. May Aug. Nov. Feb. May Aug. Nov. 2004 2005 2006 'Estimates from federal funds and eurodollar futures, with an allowance for term premia and other adjustments.

Desk Survey

* Primary dealers confident of 25 bp tightening

* Statement expected to retain both an assessment of balanced risks and "measured" language

* Some anticipate a suggestion of a pause

Market Quotes

Nominal Treasuries

Two-Year

Five-Year

Ten-Year

Change from Memo:

Sept. 20 Level

Basis Points

38 2.81

23 3.50

14 4.35

TIPS

Five-Year

Ten-Year

Stocks

Wilshire 5000

Foreign Exchange

Major Currencies Index

-14

-5

Percent

4.2

-5.9

0.98

1.75

11397

81.41

60 Intermeeting Oil Price Correlations*

With S&P 500

55

50 -Jan-Mar Mar-May May-Jun Jun-Aug Aug-Sept Sept-Nov

With Ten-Year Treasury Yields 45

F---

- -

Jan-Mar Mar-May May-Jun Jun-Aug Aug-Sept Sept-Nov

With Five-Year Inflation Compensation

Jan-Mar Mar-May May-Jun Jun-Aug Aug-Sept Sept-Nov

'Correlations based on daily changes in the log WTI spot oil price. Red denotes statistically significantly different from zero.

Oil Price* $/barrel

40

35

30

Jan. Apr. July Oct. Jan. Apr. July Oct. 2003 2004

'Spot price of West Texas Intermediate crude oil.

November 10, 2004 104 of 107

Exhibit 2

The Case for Tightening 25 Basis Points

Employment Growth

Nonfarm Payrolls - Three-month Moving Average

I'

I I I I II I I2003

Thousands - 400

S- in

2004

Inflation CompensationPercent

Range of Values from Policy Rules and Futures Markets

Quarterly

Percent

- Actual federal funds rate and Greenbook assumption S..... Market expectations estimated from futures quotes

CL, .I1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

An explanatory note is provided in Chart 5 of the Bluebook.

Range of Estimated Equilibrium Real RatesPercent

- Actual Real Funds Rate ...-- Historical Average: 2.7 (196401-200403)

TIPS-Based Estimate

An explanatory note is provided in Chart 6 of the Bluebook.

1...1...1...1...1. .. 1...I...I...I... I...I...I...I...I ... I

November 10, 2004 105 of 107

Exhibit 3

Options for the Statement

The Case for B

* The Committee may want to indicate that a pause could be appropriate in December

* Opportunity to assess the expansion

* Limit the risk of inappropriate extrapolation

The Case for B'

* The current language provides scope for a pause

* Desire to remain flexible

* Investor expectations allow for the possibility of a pause

The Case for C

* Higher oil prices and a weaker dollar may boost inflation pressures

* Structural productivity growth may be slowing

* Implying a rise in unit labor costs

Monetary Policy Decisions and Surprises* Basis Points

50 Decision

Surprise 25 !- 0

-25

-50

2000 2001 2002 2003 2004

*Policy surprises are based on intraday data on federal funds futures. All FOMC meeting and intermeeting moves since 2000, except September 17, 2001.

Implied Distribution of Federal Funds Rate about Six Months Ahead*

Percent

1.50 2.00 2.50 3.00 3.50

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

Productivity and Unit Labor Costs Twelve-month percent change

01 03 Q1 03 Q1 Q3 01 Q3 01 Q3

2000 2001 2002 2003 2004

November 10, 2004 106 of 107

Table 1: Alternative Language for the November FOMC Announcement (Revised

September FOMC Alternative B Alternative B' Alternative C

1. The Federal Open Market The Federal Open Market The Federal ()pen Market The Federal ()pen Market Committee decided today to Committee decided today to raise Committee decided today to Committee decided today to raise raise its target for the federal its target for the federal funds raise its target for the federal its target for the federal funds rate

Policy finds rate by 25 basis points to rate by 25 basis points to 2 funds rate by 25 basis points to by 25 basis points to 2 percent. Decision 1% percent. percent, bringing the cumulative 2 percent.

increase in the target rate over

the past several months to 1

percentage point.

2. The Committee believes that, The Committee believes that the even after this action, the stance stance of monetar, policy Unchanged from Il nchanged from of monetary policy remains remains accommodative and, accommodative and, coupled coupled with robust underl\ ing September statement September statement

with robust underlying growth growth in productivity, is in productivits, is providing providing ongoing support to

ongoing support to economic economic activity.

activity.

3. After moderating earlier this ()utput appears to be growing at ()utput appears to be growing at ()utput appears to be growing at a year partly in response to the a moderate pace, and labor a moderate pace despite the moderate pace, and labor market

Rationale substantial rise in energy prices, market conditions have rise in energy prices, and labor conditions have improved. output growth appears to have improved. market conditions have regained some traction, and improved.

labor market conditions have

improved modestlh.

4. Despite the rise in energy prices, Despite the rise in energy prices, D .pi t ... :"he : . A..,. \lthough longer-term inflation inflation and inflation inflation and longer-term Inflation and longer-term expectations seem to remain well expectations have eased in inflation expectations remain well inflation expectations remain contained, rising energy prices and recent months. contained. well contained. an escalation of business costs

have the potential to contribute to

upward pressure on prices.

5. The Committee perceives the

upside and downside risks to IUnchanged from (Unchanged from (Unchanged from the attainment of both sustainable growth and price September statement] September statement] September statement]

stability for the next few

quarters to be roughly equal.

6. With underlying inflation Assessment expected to be relatively lowx,

of Risk the Committee believes that polic accommodation can e lnchanged from [Unchanged from I nchanged from

policy accommodation can be removed at a pace that is likelh September statement September statement September statement

to be measured. Nonetheless, the Committee will respond to

changes in economic prospects

as needed to fulfill its obligation to maintain price stability.

November 10, 2004 107 of 107