National Economic ConditionsRoy Webb

February 1, 2012

2

Real Per Capita GDP

Source: Census Bureau, Bureau of Economic Analysis, Haver Analytics

10000

20000

30000

40000

Chained 2005$, Logarithmic scale

Trend2.05%

10001869 1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009

3

Real Per Capita GDP

Source: Census Bureau, Bureau of Economic Analysis, Haver Analytics

10000

20000

30000

40000

Chained 2005$, Logarithmic scale

10001869 1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009

Trend2.05%

4

Real Gross Domestic Product

Source: Bureau of Economic Analysis/Haver Analytics

Percent change from previous quarter at annual rate

-10

-8

-6

-4

-2

0

2

4

6

8

10

-10

-8

-6

-4

-2

0

2

4

6

8

10

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Q42.8%

5

Real Residential Investment

Source: Bureau of Economic Analysis/Haver Analytics

200

300

400

500

600

700

800

900

1000

200

300

400

500

600

700

800

900

1000

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Billions of Chained 2005$

Q4334 bln.

6

Homeowner Vacancy Rate

Source: Census Bureau/Haver Analytics

Notes: Homeowner Vacancy Rate is (Vacant Year-Round Housing Units for Sale Only + Other Held Off Market Units) divided by (Owner-Occupied Housing Units + Vacant Year-Round Housing Units For Sale Only+ Vacant Year-Round Housing Units Held off Market) multiplied by 100.

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

1995 1997 1999 2001 2003 2005 2007 2009 2011

Percent

Q35.8%

7

House Prices

Source: Standard & Poor’s, Federal Housing Finance Agency/Haver Analytics

Index, Jan. 00 = 100

60

80

100

120

140

160

180

200

220

240

260

280

60

80

100

120

140

160

180

200

220

240

260

280

1995 1997 1999 2001 2003 2005 2007 2009 2011

Case SchillerComposite 10

Index

FHFAPurchase Only

Index

8

Real Personal Consumption Expenditure

Source: Bureau of Economic Analysis/Haver Analytics

90

95

100

105

110

115

120

90

95

100

105

110

115

120

t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9 t+10 t+11 t+12 t+13 t+14 t+15 t+16

2007:Q4 - 20011:Q4

1973:Q4 - 1977:Q4

1980:Q1 - 1984:Q1

Index, Peak = 100

Note: Quarters after Business Cycle Peak. Recession starts at t.

9

Household Net Worth

Source: Federal Reserve Board/Haver Analytics

300

400

500

600

700

800

300

400

500

600

700

800

1995 1997 1999 2001 2003 2005 2007 2009 2011

Percent of disposable personal income

Q3496%

10

2

4

6

8

10

12

14

16

18

20

22

2

4

6

8

10

12

14

16

18

20

22

2006 2007 2008 2009 2010 2011 2012 2013

Autos and Light Trucks

Light Trucks

Autos

Dec.13.5 mil.

Sales of Automobiles & Light TrucksMillions of Vehicles

Source: Bureau of Economic Analysis/Haver Analytics

11

Personal Income & Expenditures

Source: Bureau of Economic Analysis/Haver Analytics

-6

-4

-2

0

2

4

6

-6

-4

-2

0

2

4

6

2006 2007 2008 2009 2010 2011 2012 2013

12 Month % Change

Real Personal Consumption Expenditure

Real Personal Income

Month over Month % Change

Oct. Nov. Dec.Income 0.4 0.1 0.4Expenditures 0.1 0.1 -0.1

Dec.

12

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

2006 2007 2008 2009 2010 2011 2012 2013

Percent change from previous quarter at annual rate

Q45.2%

Real Investment in Equipment & Software

Source: Bureau of Economic Analysis/Haver Analytics

13

45

50

55

60

65

70

75

45

50

55

60

65

70

75

2006 2007 2008 2009 2010 2011 2012 2013

Current $, Billions

Shipments

Dec.

New Orders

Source: Census Bureau/Haver Analytics

Core Capital Goods

Notes: Core capital goods are nondefense capital goods excluding aircraft.

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

2006 2007 2008 2009 2010 2011 2012 2013

14

Quarterly average of monthly changes, thousands of persons

Q4Avg.

Nonfarm Payroll Employment

Source: Bureau of Labor Statistics/Haver Analytics

Dec. 200Nov. 100Oct. 112Sep. 210Aug. 104

Monthly Change

15

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percent

Dec.8.5%

Civilian Unemployment Rate

Source: Bureau of Labor Statistics, Board of Governors, Haver Analytics

Notes: FOMC forecast is the central tendency for the Q4 levels, from the January 24-25 meeting.

FOMC Forecast

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2007 2008 2009 2010 2011 2012 2013

16

12 Month % Change

Dec.2.1%

Average Hourly Earnings

Source: Bureau of Labor Statistics/Haver Analytics

Dec. 0.2%Nov. 0.0%Oct. 0.3%Sep. 0.2%

Monthly % Change

17

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dec.2.4%

FOMC Forecast

Overall Consumer Expenditure Price Index12 Month % Change

Notes: FOMC forecast is the central tendency for Q4/Q4 percent changes, from the January 24-25 meeting.

Source: Bureau of Economic Analysis, Board of Governors, Haver Analytics

18

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dec.1.8%

FOMC Forecast

Core Consumer Expenditure Price Index12 Month % Change

Notes: FOMC forecast is the central tendency for Q4/Q4 percent changes, from the January 24-25 meeting. Core PCE Price Index includes expenditures on food services.

Source: Bureau of Economic Analysis, Board of Governors, Haver Analytics

19

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Federal Funds Target Rate

Jan. 25

Primary Credit Rate

Discount Rate(discontinued)

Monetary Policy InstrumentsPercent

Source: Board of Governors/Haver Analytics

Federal Funds Rate Target Range

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

6/27/2007 12/31/2008 1/4/2012

20

Federal Reserve System Assets

Source: Board of Governors/Haver Analytics

$, Billions

Miscellaneous: $156Total: $2,270

Treasury Securities:$476

Notes: PDCF is the Primary Dealer Credit Facility. AMLF is the Money Market Liquidity Facility. Discount Window Lending is than $1 billion as of 6/2/2010.

PDCF: $38

Treasury Securities:$1,654

Agency Debt: $101

Agency MBS: $846

AIG & Bear Stearns: $34

Term ABS LendingFacility: $8

Total: $2,965

Miscellaneous: $219

Agency Debt: $20

Miscellaneous: $176Discount Window: $87

AMLF: $24Foreign Currency

Swaps: $553

AIG & Bear Stearns: $114

Term Auction Facility:$450

Commercial PaperFacility (CPFF): $332

Treasury Securities:$790

Total: $899Miscellaneous: $110

Foreign Currency Swaps: $103

21Source: Board of Governors

Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.

The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.

Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals.

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances.

The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projections. For example, in the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January but substantially higher than the corresponding interval several years earlier.

In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary.  However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate.  

Federal Reserve Board press release – January 25, 2012

22

Percent of GDP

Federal Revenues

Source: CBO’s Long-Term Budget Outlook (revised in June, 2011)/Haver Analytics

Notes: Projections are CBOs “Alternative Fiscal Scenario,” which incorporates several changes to the current law that are widely expected to occur or would modify some provisions that might be difficult to sustain for a long period. Horizontal dashed line indicates 1960-2008 average annual federal revenues.

10

15

20

25

30

35

40

10

15

20

25

30

35

40

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Actual Projected

23

Percent of GDP

Federal Outlays

Source: CBO’s Long-Term Budget Outlook (revised in June, 2011)/Haver Analytics

Notes: Projections are CBOs “Alternative Fiscal Scenario,” which incorporates several changes to the current law that are widely expected to occur or would modify some provisions that might be difficult to sustain for a long period. Horizontal dashed line indicates 1960-2008 average annual federal outlays.

10

15

20

25

30

35

40

10

15

20

25

30

35

40

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Actual Projected

24

Percent of GDP

Federal Deficit

Source: CBO’s Long-Term Budget Outlook (revised in June, 2011)/Haver Analytics

Notes: Projections are CBOs “Alternative Fiscal Scenario,” which incorporates several changes to the current law that are widely expected to occur or would modify some provisions that might be difficult to sustain for a long period. Horizontal dashed line indicates 1960-2008 average federal deficit.

-25

-20

-15

-10

-5

0

5

-25

-20

-15

-10

-5

0

5

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Actual Projected

25

Percent of GDP

Federal Debt Held by Public

Source: CBO’s Long-Term Budget Outlook (revised in June, 2011)/Haver Analytics

Notes: Projections are CBOs “Alternative Fiscal Scenario,” which incorporates several changes to the current law that are widely expected to occur or would modify some provisions that might be difficult to sustain for a long period. Horizontal dashed line indicates 1960-2008 average annual debt held by public. Projections are expected to be greater than 200% in 2037 and later.

0

20

40

60

80

100

120

140

160

180

200

0

20

40

60

80

100

120

140

160

180

200

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Actual Projected