Fomc 20060920 Material

Appendix 1: Materials used by Mr. Kos

September 20, 2006 Authorized for Public Release 119 of 132

Page 1 of 4

4.00

4.25

4.50

4.75

5.00

5.25

5.50

Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06

Percent

4.00

4.25

4.50

4.75

5.00

5.25

5.50Percent

2-Year Yield

Target Fed Funds

10-Year Yield

8/08/06:FOMC

2- and 10-Year Treasury Yields and Target Fed Funds Rate January 2, 2006 – September 18, 2006

Current U.S. 3-Month Deposit Rates and Rates Implied by Traded Forward Rate Agreements

January 2, 2006 – September 18, 2006

4.25

4.50

4.75

5.00

5.25

5.50

5.75

6.00


Percent

4.25

4.50

4.75

5.00

5.25

5.50

5.75

6.00Percent

8/08/06:FOMC

6/29/06:FOMC

+25 Bps

5/10/06:FOMC

+25 Bps

3/28/06:FOMC

+25 Bps

1/31/06:FOMC

+25 Bps

Libor Fixing 3M Forward 6M Forward 9M Forward$

Class II FOMC – Restricted FR

U.S. Breakeven Inflation Rates January 2, 2006 – September 18, 2006

2.30

2.40

2.50

2.60

2.70

2.80

Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-062.30

2.40

2.50

2.60

2.70

2.80

5Y-5Y Forward Breakeven Rate

10Y Breakeven Rate

Percent Percent


Page 2 of 4December 2006-2007 Interest Rate Future Spreads


-75

-50

-25

0

25

50

75

100


Basis Points

-75

-50

-25

0

25

50

75

100

Basis Points

Eurodollar

Euribor

Euroyen

Canadian BA

Sterling

3.00

3.50

4.00

4.50

5.00

5.50

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1

Percent

U.S.

France

Canada

U.K.

Global 10-Year Yields January 2, 2006 – September 18, 2006

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1

Percent

1.50

2.00

2.50

3.00

3.50

U.S. 10Y

France 10Y

U.K. 10Y

Canada 15Y

Global Breakeven Inflation Rates January 2, 2006 – September 18, 2006

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/10.40

0.60

0.80

1.00

1.20Percent

3/09/06:BoJ

QEP End

7/14/06:BoJ

+ 25 Bps

8/24/06:CPI

Revisions

Japanese 10-Year Breakeven Inflation Rate January 2, 2006 – September 18, 2006

1.20

1.40

1.60

1.80

2.00

2.20

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1

Percent

3/09/06:BoJ

QEP End

7/14/06:BoJ

+ 25 Bps

8/24/06:CPI

Revisions

Japanese 10-Year Yield January 2, 2006 – September 18, 2006



Page 3 of 4

90100110120130140150160170180190200210

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1

IndexSelect Metals Prices


1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/130405060708090100110120130140150

IndexFront Month Energy Futures Prices January 2, 2006 – September 18, 2006

Index: 1/2/06 = 100

Platinum

Silver

Natural Gas

Heating Oil

Copper

Gold

Zinc

Crude Oil

GasolineIndex: 1/2/06 = 100

0.0

0.5

1.0

1.5

2.0

2.5

1 Year 2 Year 5 Year 10 Year 30 Year

Percent

0.0

0.5

1.0

1.5

2.0

2.5Percent

8/8/2006

9/18/2006

Japanese Sovereign Yield Curve

Real Effective Yen Exchange Rate March 1973 – August 2006

8090

100110120130140150160170

1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 20068090100110120130140150160170

Index: 3/1/1973=100

Source: Bank of Japan

Index Index



Early and Regular Return Fed Funds Volumes

50,000

60,000

70,000

80,000

90,000

100,000

110,0008/

8/20

06

8/10

/200

6

8/14

/200

6

8/16

/200

6

8/18

/200

6

8/22

/200

6

8/24

/200

6

8/28

/200

6

8/30

/200

6

9/1/

2006

9/6/

2006

9/8/

2006

9/12

/200

6

9/14

/200

6

9/18

/200

6

0%

3%

6%

9%

12%

15%

18%Regular Return (LHS) Early Return (LHS) % Early Return (RHS) Percent of Total$ Billions

9 a.m. Brokered Overnight Fed Funds Rate vs. Early Return Fed Funds Effective Rate

Target Rate

9am FF Rate

Early Return Effective Rate

5.185.195.205.215.225.235.245.255.265.275.285.295.305.31

8/8/2006 8/11/2006 8/16/2006 8/21/2006 8/24/2006 8/29/2006 9/1/2006 9/7/2006 9/12/2006 9/15/2006

Percent

5.185.195.205.215.225.235.245.255.265.275.285.295.305.31

Percent

Page 4 of 4

*Large Principal & Interest Payment Dates for the GSEs: 8/15/06, 8/25/06, 9/15/06

Intraday Standard Deviation for Early Return,Regular Return, and All Fed Funds Transactions

0.000.020.040.060.080.100.120.140.160.180.20

8/8/

2006

8/10

/200

6

8/14

/200

6

8/16

/200

6

8/18

/200

6

8/22

/200

6

8/24

/200

6

8/28

/200

6

8/30

/200

6

9/1/

2006

9/6/

2006

9/8/

2006

9/12

/200

6

9/14

/200

6

9/18

/200

6

Percent

0.000.020.040.060.080.100.120.140.160.180.20

PercentEarly Return Regular Return



Appendix 2: Materials used by Mr. Bernanke


1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005-4

-2

0

2

4

6

8

10

12

14

-4

-2

0

2

4

6

8

10

12

14Percent change from four quarters earlier

2006:Q2

2 percent

Real GDP

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005-4

-3

-2

-1

0

1

2

3

4

-4

-3

-2

-1

0

1

2

3

4Percentage point change from four quarters earlier

2006:Q2

0.3 percentagepoint

Unemployment Rate

CLASS II FOMC - RESTRICTED (FR)

Page 1 of 1


Appendix 3: Materials used by Mr. Reinhart


Class I FOMC – Restricted Controlled FR Material for FOMC Briefing on Monetary Policy Alternatives Vincent R. Reinhart September 20, 2006


Exhibit 1Financial Market Developments

Aug. 7 Aug. 11 Aug. 18 Aug. 25 Sept. 1 Sept. 8 Sept. 154.8

5.0

5.2

5.4

5.6

5.8

FOMCMinutes

Jul.PPI

EmploymentReport

Jul.CPI

FOMC Aug.CPI

Aug.PPI

Eurodollar futuresPercent

Dec. 2006Eurodollar

Dec. 2007Eurodollar

Note. 5-minute intervals.

Sept. Mar. Sept. Mar. Sept.2006 2007 2008

3.5

4.0

4.5

5.0

5.5

6.0Percent

September 19, 2006

August 7, 2006

Expected federal funds rates

Note. Estimates from federal funds and Eurodollarfutures with an allowance for term premiums andother adjustments.

1 3 5 7 10

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5Percent

Nominal 9/19/2006*Nominal 8/7/2006*TIPS 9/19/2006**TIPS 8/7/2006**

Maturity in Years*Smoothed yield curve estimated from off-the-run Treasury coupon securities. Yieldsshown are those on notional par Treasury securities with semi-annual coupons.**Smoothed yield curve estimated from TIPS securities. Yields shown are those onnotional par TIPS securities with semi-annual coupons.

Yield curves

-20

-16

-12

-8

-4

0

4

1-2 3-5 5-10

Change in nominal forward rates since August FOMCBasis points

-10

-5

0

5

10

15

20

1-2 3-5 5-10

Change in TIPS forward rates since August FOMCBasis points

-36

-30

-24

-18

-12

-6

0

1-2 3-5 5-10

Change in inflation compensation forward ratessince August FOMC

Basis points

Class I FOMC -- Restricted Controlled FR

Page 1 of 5


Exhibit 2The Case for No Action

Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July2004 2005 2006

1.5

2.0

2.5

3.0

3.5

4.0Percent

Next Five YearsFive-Year Forward, Five Years Ahead

Inflation compensation

Daily

Note. Estimates based on smoothed nominal and inflation-indexed Treasury yield curves andadjusted for the carry effect.

FOMC

Percent

June Sept

Higher

Unchanged

Lower

41

22

38

62

25

12

Merrill Lynch Survey: Global inflationexpectationsIn twelve months inflation will be:

Source. Merrill Lynch Global Fund ManagerSurvey.

2002 2003 2004 2005 2006 2007 2008

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Percent

September GreenbookAugust Greenbook

Output gap

QuarterlyPercent

June Sept

Higher

Unchanged

Lower

10

18

73

13

25

61

Merrill Lynch Survey: Global growthexpectationsIn twelve months growth will be:


1968 1972 1976 1980 1984 1988 1992 1996 2000 2004

-2

-1

0

1

2

3

4Percentage pointsSpread between two- and ten-year Treasury yields

Note. Two- and ten-year yields are continuously compounded zero-coupon rates. Shadedregions mark NBER recession dates. Final observation is an average of data through Sept. 19.

Monthly Percent

June Sept

Very Likely

Fairly Likely

Fairly Unlikely

Very Unlikely

1

6

58

33

0

5

53

41

Merrill Lynch Survey: Global recessionexpectationsOver the next twelve months arecession is:



Page 2 of 5


Exhibit 3The Case for Action

Aug. 7 Aug. 18 Aug. 31 Sept. 14

-0.60

-0.55

-0.50

-0.45

-0.40

Change in expected federalfunds rateDec. 2006 to Dec. 2007 Percent

Note. 5-minute intervals.

400

600

800

1000

1200

2001 2003 2005

100

150

200

250

300

350

400Basis points

Corporate bond spreads

Daily

Note. Spreads over comparable-maturityTreasury yields.

Basis points

Five-yearhigh yield(left scale)

Five-year BBB(right scale)

Jan. May Oct. Mar. Aug.2005 2006

90

95

100

105

110

115

120Index: 1/3/05 = 100

FOMC

Wilshire 5000

Daily

2000 2001 2002 2003 2004 2005 2006 2007 20080.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Percent change, annual rate

3-month12-month

Core PCE prices

2002 2003 2004 2005 20061

2

3

4

5

Percent

Michigan SRC, next twelve monthsMichigan SRC, next five to ten years

Expected CPI inflation

Sept.(p)

p Preliminary.

2002 2003 2004 2005 2006 2007 2008 0

2

4

6

8

10

12Four-quarter percent change

CurrentAugust GB

Compensation per hourNon-farm business sector


Page 3 of 5


Exhibit 4 Statement Alternatives

Alternative Intention Target Rate Assessment of Risk A

Ratify expectations of easing

Unchanged

In recent weeks, the upside risks to inflation appear to have diminished somewhat and downside risks to growth have become more significant. In these circumstances, future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

B

Leave expectations about unchanged

Unchanged

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

B+

Emphasize that tightening is more likely than easing

Unchanged

Nonetheless, the Committee judges that some inflation risks remain and that policy is more likely to firm than ease going forward. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

C-

Impose additional restraint

+25 basis points

Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

C

Impose considerable additional restraint

+25 basis points

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.


Page 4 of 5


Exhibit 5 [Final Exhibit]

Table 1: Alternative Language for the September FOMC Announcement

August FOMC Alternative A Alternative B Alternative C

Policy Decision

1. The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5¼ percent.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5¼ percent.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5¼ percent.

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5½ percent.

2. Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a cooling of the housing market.

Rationale

3. Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Although core inflation remains elevated, recent readings have been slightly more favorable. While some inflation pressures persist, they seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Readings on core inflation have been elevated on balance, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Readings on core inflation have been elevated on balance, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. In these circumstances, the Committee believed that an additional firming of policy was appropriate to foster a decline in inflation.

Assessment of Risk

4. Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

In recent weeks, the upside risks to inflation appear to have diminished somewhat and downside risks to growth have become more significant. In these circumstances, future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

[Unchanged]

[Unchanged]


Page 5 of 5


Documents

Fomc 20060920 Material