Fomc 20070628 Text Material

Presentation Materials (PDF)

Pages 219 to 261 of the Transcript

Appendix 1: Materials used by Mr. Dudley

Class II FOMC - Restricted FR

Page 1

Top panel(1)

Title: Treasury Yield Curve Shifts HigherSeries: Constant maturity Treasury yield curve as of 3/20/2007, 5/8/2007, and 6/25/2007Horizon: March 20, 2007 - June 25, 2007Description: The Treasury yield curve has shifted higher since the last two FOMC meetings.

Source: Bloomberg

Middle panel(2)

Title: 10-Year Treasury Inflation Protected and Nominal Treasury YieldsSeries: 10-Year Nominal Treasury yield and 10-Year inflation protected Treasury yieldHorizon: January 1, 2007 - June 25, 2007Description: Both nominal and inflation protected Treasury yields have increased since the lastFOMC meeting.

Source: Bloomberg

Bottom panel(3)

Title: TIPS Inflation Compensation: 5-10 Year HorizonSeries: 5-10 Year Horizon TIPS inflation compensationHorizon: June 1, 2006 - June 25, 2007Description: TIPS inflation compensation over a 5-10 year horizon has increased recently.

Source: Federal Reserve Board

Page 2

Top panel(4)

Title: Eurodollar Futures Curve FlattensSeries: Eurodollar futures curve as of 3/20/2007, 5/8/2007, and 6/25/2007Horizon: March 20, 2007 - June 25, 2007Description: As of 6/25/2007, Eurodollar futures contracts show that there are reduced expectationsfor a rate cut by the end of 2008, where before there were at least two twenty-five basis point ratecuts priced in.

Source: Bloomberg

Middle panel(5)

Title: Distribution of Expected Policy Target Among Primary Dealers Prior to May 9 FOMCMeetingSeries: Dealer expectations for policy target rate by quarter, average forecast for policy target byquarter, and market rate for policy expectation by quarter as of 5/1/2007Horizon: Q2 2007 - Q4 2008Description: There is more dispersion regarding where dealers expect the policy rate to be in Q42008. Dealers on average expect higher rates than what is currently priced into eurodollar futures.

Source: Dealer Policy Survey

Bottom panel(6)

Title: Distribution of Expected Policy Target Among Primary Dealers Prior to June 28 FOMCMeetingSeries: Dealer expectations for policy target rate by quarter, average forecast for policy target byquarter, and market rate for policy expectation by quarter as of 6/18/2007Horizon: Q2 2007 - Q4 2008Description: Compared to the May policy survey, there is less dispersion of policy rate expectationfor Q4 2008. Market expectations are more in line with dealer forecasts.


Page 3

Top-left panel(7)

Title: Primary Dealers' GDP ForecastsSeries: Average GDP forecast from current survey, average GDP forecast from previous survey,minimum and maximum dealer GDP forecast.Horizon: Q2 2007 - Q1 2008Description: There has been a significant upward shift in primary dealers' GDP forecasts for Q22007.


Top-right panel(8)

Title: Reduced Uncertainty Regarding GDP ForecastsSeries: Uncertainty regarding GDP forecast from current and previous surveyHorizon: Q2 2007 - Q1 2008Description: There is reduced uncertainty regarding GDP forecast among dealers in the currentsurvey as compared to the previous survey.


Middle panel(9)

Title: 30-Year Conventional Mortgage-Backed Security Coupon StacksSeries: Coupon stacks of 30-Year conventional mortgages, 30-year conventional mortgage rate as of5/30 and 6/25Horizon: May 30, 2007 - June 25, 2007Description: As the average mortgage rate shifted from 6.31 percent on May 30 to 6.60 percent onJune 25, there are fewer mortgages eligible for refinancing.

Source: Bloomberg

Bottom panel(10)

Title: Mortgage Convexity Hedging Drives Up 10-Year Treasury YieldsSeries: 2-Year, 5-Year, 10-Year, and 30-Year Treasury yieldsHorizon: May 10, 2007 - June 13, 2007Description: 10-Year Treasury Yields increased sharply as a result of mortgage convexity hedging.

Source: Bloomberg

Page 4

Top panel(11)

Title: Custody Holdings of Treasury Securities at FRBNY Level Off Since Mid-AprilSeries: FRBNY custody holding of Treasury securitiesHorizon: January 1, 2007 - June 13, 2007Description: Custody holding of Treasury securities at FRBNY has leveled off since mid-April

Source: Federal Reserve Bank of New York

Middle panel(12)

Title: Ripple Effects in U.S. Equity Market were ModestSeries: S&P 500 index and Nasdaq indexHorizon: January 1, 2007 - June 25, 2007Description: Although equity markets declined modestly in reaction to higher U.S. rates, the movewas less sharp than the price action witnessed at the end of February.

Source: Bloomberg

Bottom panel(13)

Title: Corporate Debt SpreadsSeries: High-Yield and Investment Grade option adjusted spreadsHorizon: January 1, 2007 - June 25, 2007Description: High-yield spreads have widened since the beginning of June 2007, while investmentgrade spreads have remained relatively stable.

Source: Bloomberg

Page 5

Top panel(14)

Title: Currency Performance Against the Japanese YenSeries: EUR-YEN, USD-YEN, NZD-YEN, and AUD-YENHorizon: February 27 - June 25, 2007Description: The yen depreciated against higher-yielding currencies during the intermeeting period,suggesting risk appetite remained intact.

Source: Bloomberg

Middle panel(15)

Title: Implied Volatility Low, Except for TreasuriesSeries: MOVE index, VIX index, and 1-Month Dollar-Yen Volatility indexHorizon: January 1, 2007 - June 25, 2007Description: Implied volatility was low for most markets except for the Treasury market during theintermeeting period.

Source: Bloomberg

Bottom panel(16)

Title: September 2008 Eurodollar, Euribor, and Euroyen Interest Rate Futures ContractsSeries: Eurodollar-Euribor Contract Spread and Eurodollar-Euroyen Contract SpreadHorizon: January 1, 2007 - June 25, 2007Description: Spreads between September 2008 Eurodollar-Euribor and Eurodollar-Euroyencontracts have widened since the May FOMC meeting.

Source: Bloomberg

Page 6

Top panel

(17)

Title: Dollar StrengthensSeries: Trade-weighted Dollar, Yen vs. USD, Euro vs. USDHorizon: January 1, 2007 - June 25, 2007Description: Since the beginning of the year, the U.S. dollar has softened against the euro while ithas appreciated against the Japanese yen. Overall, the trade-weighted dollar has also declined sinceJanuary 1, 2007.

Source: Bloomberg

Middle panel(18)

Title: Japanese Yen WeakensSeries: Japanese Yen and Real Trade-Weighted Japanese YenHorizon: January 1995 - May 2007Description: Although the yen has remained within a broad range against the dollar, on a real trade-weighted basis it has reached a new low this year.

Source: Bloomberg and Bank for International Settlements

Bottom panel(19)

Title: Subprime BBB-Rated MBS and Related SpreadsSeries: MBS CDS BBB, ABX 06-2 BBB, and Cash MBS BBBHorizon: January 1, 2007 - June 25, 2007Description: Subprime BBB-rated cash, CDS, and ABX 06-2 widened since the beginning of June2007.

Source: JP Morgan

Appendix 2: Materials used by Mr. Wilcox, Ms. Liang, and Mr. Leahy

Material for Staff Presentation on the Economic OutlookJune 27, 2007

CLASS II FOMC - Restricted (FR)

Exhibit 1Forecast Summary

Top-left panelReal GDP

Q4/Q4 percent change

Period Real GDP May GB June GB

2003 3.68 ND ND

2004 3.40 ND ND

Period Real GDP May GB June GB

2005 3.15 ND ND

2006 3.13 ND ND

2007 ND 1.97 2.18

2008 ND 2.37 2.52

ND No data Return to table

Top-right panelReal GDP

Quarterly percent change (annual rate)

May GB June GB

2007: Q2 2.6 3.0

Q3 2.0 2.5

Q4 2.1 2.2

2008* 2.4 2.5

* 2008:Q4 / 2007:Q4 Return to table

Middle-left panelUnemployment Rate

Percent

Period Unemployment Rate May GB June Forecast

2003:Q1 5.87 ND ND

2003:Q2 6.14 ND ND

2003:Q3 6.11 ND ND

2003:Q4 5.82 ND ND

2004:Q1 5.67 ND ND

2004:Q2 5.58 ND ND

2004:Q3 5.45 ND ND

2004:Q4 5.40 ND ND

2005:Q1 5.26 ND ND

2005:Q2 5.10 ND ND

2005:Q3 4.99 ND ND

2005:Q4 4.96 ND ND

2006:Q1 4.70 ND ND

2006:Q2 4.65 ND ND

2006:Q3 4.67 ND ND

2006:Q4 4.46 ND ND

2007:Q1 4.49 4.49 ND

2007:Q2 ND 4.56 4.48


2007:Q3 ND 4.66 4.60

2007:Q4 ND 4.75 4.69

2008:Q1 ND 4.83 4.75

2008:Q2 ND 4.90 4.79

2008:Q3 ND 4.94 4.82

2008:Q4 ND 4.97 4.85

Middle-right panelUnemployment Rate

Percent

May GB June GB

2007: Q2 4.6 4.5

Q3 4.7 4.6

Q4 4.8 4.7

2008* 5.0 4.8

* Q4 Return to table

Bottom-left panelCore PCE Prices

Q4/Q4 percent change

Period Core PCE Prices May GB June GB

2003 1.44 ND ND

2004 2.22 ND ND

2005 2.10 ND ND

2006 2.19 ND ND

2007 ND 2.26 2.02

2008 ND 2.14 2.05

Bottom-right panelCore PCE Prices

Quarterly percent change (annual rate)

May GB June GB

2007: Q2 2.2 1.4

Q3 2.3 2.2

Q4 2.3 2.2

2008* 2.1 2.0

* 2008:Q4 / 2007:Q4 Return to table

Exhibit 2Single-Family Housing

Top-left panelStarts

Millions of units, annual rate,ratio scale

Period Starts Forecast

1970:Q1 0.69 ND

1970:Q2 0.76 ND

1970:Q3 0.84 ND

1970:Q4 0.97 ND

1971:Q1 1.03 ND

1971:Q2 1.15 ND

1971:Q3 1.16 ND

1971:Q4 1.25 ND

1972:Q1 1.33 ND

1972:Q2 1.26 ND

1972:Q3 1.35 ND

1972:Q4 1.31 ND

1973:Q1 1.34 ND

1973:Q2 1.18 ND

1973:Q3 1.10 ND

1973:Q4 0.92 ND

1974:Q1 0.93 ND

1974:Q2 0.96 ND

1974:Q3 0.86 ND

1974:Q4 0.78 ND

1975:Q1 0.73 ND

1975:Q2 0.85 ND

1975:Q3 0.95 ND

1975:Q4 1.03 ND

1976:Q1 1.14 ND

1976:Q2 1.10 ND

1976:Q3 1.18 ND

1976:Q4 1.25 ND

1977:Q1 1.36 ND


1977:Q2 1.43 ND

1977:Q3 1.46 ND

1977:Q4 1.51 ND

1978:Q1 1.31 ND

1978:Q2 1.49 ND

1978:Q3 1.42 ND

1978:Q4 1.46 ND

1979:Q1 1.16 ND

1979:Q2 1.29 ND

1979:Q3 1.20 ND

1979:Q4 1.03 ND

1980:Q1 0.79 ND

1980:Q2 0.69 ND

1980:Q3 0.96 ND

1980:Q4 0.98 ND

1981:Q1 0.87 ND

1981:Q2 0.79 ND

1981:Q3 0.65 ND

1981:Q4 0.54 ND

1982:Q1 0.57 ND

1982:Q2 0.60 ND

1982:Q3 0.66 ND

1982:Q4 0.82 ND

1983:Q1 1.03 ND

1983:Q2 1.09 ND

1983:Q3 1.09 ND

1983:Q4 1.05 ND

1984:Q1 1.22 ND

1984:Q2 1.10 ND

1984:Q3 1.00 ND

1984:Q4 1.07 ND

1985:Q1 1.06 ND

1985:Q2 1.05 ND

1985:Q3 1.06 ND

1985:Q4 1.11 ND

1986:Q1 1.20 ND

1986:Q2 1.22 ND


1986:Q3 1.16 ND

1986:Q4 1.16 ND

1987:Q1 1.24 ND

1987:Q2 1.14 ND

1987:Q3 1.16 ND

1987:Q4 1.08 ND

1988:Q1 1.06 ND

1988:Q2 1.07 ND

1988:Q3 1.07 ND

1988:Q4 1.14 ND

1989:Q1 1.04 ND

1989:Q2 1.00 ND

1989:Q3 1.00 ND

1989:Q4 0.99 ND

1990:Q1 1.06 ND

1990:Q2 0.90 ND

1990:Q3 0.86 ND

1990:Q4 0.79 ND

1991:Q1 0.70 ND

1991:Q2 0.84 ND

1991:Q3 0.88 ND

1991:Q4 0.91 ND

1992:Q1 1.04 ND

1992:Q2 0.99 ND

1992:Q3 1.02 ND

1992:Q4 1.08 ND

1993:Q1 1.04 ND

1993:Q2 1.11 ND

1993:Q3 1.13 ND

1993:Q4 1.25 ND

1994:Q1 1.19 ND

1994:Q2 1.21 ND

1994:Q3 1.19 ND

1994:Q4 1.16 ND

1995:Q1 1.04 ND

1995:Q2 1.02 ND

1995:Q3 1.12 ND


1995:Q4 1.14 ND

1996:Q1 1.15 ND

1996:Q2 1.19 ND

1996:Q3 1.18 ND

1996:Q4 1.10 ND

1997:Q1 1.14 ND

1997:Q2 1.12 ND

1997:Q3 1.15 ND

1997:Q4 1.14 ND

1998:Q1 1.23 ND

1998:Q2 1.24 ND

1998:Q3 1.28 ND

1998:Q4 1.36 ND

1999:Q1 1.34 ND

1999:Q2 1.27 ND

1999:Q3 1.29 ND

1999:Q4 1.34 ND

2000:Q1 1.28 ND

2000:Q2 1.24 ND

2000:Q3 1.19 ND

2000:Q4 1.22 ND

2001:Q1 1.26 ND

2001:Q2 1.30 ND

2001:Q3 1.28 ND

2001:Q4 1.26 ND

2002:Q1 1.36 ND

2002:Q2 1.34 ND

2002:Q3 1.34 ND

2002:Q4 1.41 ND

2003:Q1 1.41 ND

2003:Q2 1.43 ND

2003:Q3 1.53 ND

2003:Q4 1.66 ND

2004:Q1 1.56 ND

2004:Q2 1.61 ND

2004:Q3 1.64 ND

2004:Q4 1.61 ND


2005:Q1 1.71 ND

2005:Q2 1.70 ND

2005:Q3 1.75 ND

2005:Q4 1.73 ND

2006:Q1 1.74 ND

2006:Q2 1.51 ND

2006:Q3 1.39 ND

2006:Q4 1.25 ND

2007:Q1 1.16 ND

2007:Q2 ND 1.16

2007:Q3 ND 1.05

2007:Q4 ND 1.03

2008:Q1 ND 1.05

2008:Q2 ND 1.06

2008:Q3 ND 1.08

2008:Q4 ND 1.11

Note: Shading indicates periods of major downturns in single-family starts (as shown in the chart, 1972:Q3-1975:Q1;1977:Q4-1981:Q4; 1990:Q1-1991:Q1; and 2005:Q3-2007:Q4, which extends into the forecast period).

Top-right panelDeclines in Starts during Major Downturns

Period Decline (percent)

72:Q3 - 75:Q1 45

77:Q4 - 81:Q4 64

90:Q1 - 91:Q1 34

05:Q3 - 07:Q4 41

f - Staff forecast Return to table

Middle-left panelMortgage Rates

Percent

Period 30-year FRM 30-year FRM Forecast 1-year ARM

January 1999 6.79 ND 5.59

February 1999 6.81 ND 5.65

March 1999 7.03 ND 5.74

April 1999 6.90 ND 5.59

May 1999 7.15 ND 5.72

June 1999 7.58 ND 5.94

f


July 1999 7.61 ND 5.97

August 1999 7.94 ND 6.18

September 1999 7.80 ND 6.18

October 1999 7.89 ND 6.31

November 1999 7.74 ND 6.36

December 1999 7.91 ND 6.53

January 2000 8.21 ND 6.61

February 2000 8.33 ND 6.72

March 2000 8.24 ND 6.72

April 2000 8.15 ND 6.80

May 2000 8.52 ND 7.10

June 2000 8.23 ND 7.23

July 2000 8.15 ND 7.28

August 2000 8.01 ND 7.28


October 2000 7.80 ND 7.23

November 2000 7.73 ND 7.22

December 2000 7.32 ND 7.05

January 2001 7.04 ND 6.67

February 2001 7.04 ND 6.42

March 2001 6.93 ND 6.26

April 2001 7.08 ND 6.11

May 2001 7.16 ND 5.88

June 2001 7.14 ND 5.80

July 2001 7.13 ND 5.71

August 2001 6.95 ND 5.71


October 2001 6.61 ND 5.27

November 2001 6.68 ND 5.19

December 2001 7.07 ND 5.23

January 2002 7.00 ND 5.16

February 2002 6.84 ND 4.98

March 2002 7.07 ND 5.09

April 2002 6.99 ND 4.96

May 2002 6.81 ND 4.79

June 2002 6.65 ND 4.65

July 2002 6.47 ND 4.50


August 2002 6.26 ND 4.36


October 2002 6.12 ND 4.27

November 2002 6.05 ND 4.14

December 2002 6.05 ND 4.12

January 2003 5.92 ND 3.99

February 2003 5.84 ND 3.86

March 2003 5.75 ND 3.76

April 2003 5.79 ND 3.79

May 2003 5.43 ND 3.64

June 2003 5.23 ND 3.52

July 2003 5.73 ND 3.59

August 2003 6.30 ND 3.82


October 2003 5.95 ND 3.74

November 2003 5.93 ND 3.75

December 2003 5.88 ND 3.75

January 2004 5.71 ND 3.63

February 2004 5.64 ND 3.55

March 2004 5.46 ND 3.42

April 2004 5.91 ND 3.70

May 2004 6.27 ND 3.88

June 2004 6.27 ND 4.11

July 2004 6.02 ND 4.09

August 2004 5.87 ND 4.06


October 2004 5.72 ND 4.02

November 2004 5.73 ND 4.15

December 2004 5.75 ND 4.18

January 2005 5.71 ND 4.12

February 2005 5.63 ND 4.16

March 2005 5.93 ND 4.23

April 2005 5.86 ND 4.25

May 2005 5.72 ND 4.23

June 2005 5.58 ND 4.24

July 2005 5.70 ND 4.40

August 2005 5.80 ND 4.53



October 2005 6.07 ND 4.86

November 2005 6.32 ND 5.14

December 2005 6.28 ND 5.17

January 2006 6.15 ND 5.17

February 2006 6.25 ND 5.34

March 2006 6.32 ND 5.42

April 2006 6.51 ND 5.62

May 2006 6.61 ND 5.64

June 2006 6.69 ND 5.72

July 2006 6.76 ND 5.79

August 2006 6.52 ND 5.64


October 2006 6.36 ND 5.55

November 2006 6.24 ND 5.51

December 2006 6.14 ND 5.45

January 2007 6.24 ND 5.48

February 2007 6.25 ND 5.50

March 2007 6.15 ND 5.43

April 2007 6.18 ND 5.45

May 2007 6.26 ND 5.52

June 2007 6.66 ND 5.68

July 2007 ND 6.66 ND

August 2007 ND 6.66 ND

September 2007 ND 6.66 ND

October 2007 ND 6.66 ND

November 2007 ND 6.66 ND

December 2007 ND 6.66 ND

January 2008 ND 6.66 ND

February 2008 ND 6.66 ND

March 2008 ND 6.66 ND

April 2008 ND 6.66 ND

May 2008 ND 6.66 ND

June 2008 ND 6.66 ND

July 2008 ND 6.66 ND

August 2008 ND 6.66 ND

September 2008 ND 6.66 ND


October 2008 ND 6.66 ND

Source: Freddie Mac.

Middle-right panelInventory of Unsold New Homes*

Months' supply

Period Inventory

March 1999 4.02

April 1999 3.97

May 1999 3.98

June 1999 3.89

July 1999 3.94

August 1999 3.95

September 1999 4.14

October 1999 4.21

November 1999 4.29

December 1999 4.25

January 2000 4.29

February 2000 4.14

March 2000 4.29

April 2000 4.23

May 2000 4.23

June 2000 4.42

July 2000 4.30

August 2000 4.30

September 2000 4.08

October 2000 4.02

November 2000 4.03

December 2000 3.84

January 2001 3.81

February 2001 3.70

March 2001 3.70

April 2001 3.77

May 2001 3.89

June 2001 4.05

July 2001 4.15

August 2001 4.22

Period Inventory

September 2001 4.29

October 2001 4.28

November 2001 4.19

December 2001 4.00

January 2002 4.01

February 2002 4.01

March 2002 4.14

April 2002 4.16

May 2002 4.15

June 2002 4.11

July 2002 4.15

August 2002 4.11

September 2002 3.98

October 2002 3.94

November 2002 3.96

December 2002 3.96

January 2003 4.00

February 2003 4.12

March 2003 4.15

April 2003 4.15

May 2003 4.00

June 2003 3.76

July 2003 3.58

August 2003 3.49

September 2003 3.59

October 2003 3.73

November 2003 3.91

December 2003 3.96

January 2004 3.98

February 2004 3.88

March 2004 3.81

April 2004 3.81

May 2004 3.72

June 2004 3.82

July 2004 4.10

August 2004 4.23

September 2004 4.25

Period Inventory

October 2004 4.02

November 2004 4.07

December 2004 4.08

January 2005 4.38

February 2005 4.27

March 2005 4.16

April 2005 4.10

May 2005 4.18

June 2005 4.29

July 2005 4.23

August 2005 4.37

September 2005 4.51

October 2005 4.60

November 2005 4.76

December 2005 4.86

January 2006 5.19

February 2006 5.59

March 2006 5.93

April 2006 6.16

May 2006 6.12

June 2006 6.21

July 2006 6.59

August 2006 6.63

September 2006 6.67

October 2006 6.67

November 2006 6.60

December 2006 6.56

January 2007 6.73

February 2007 7.28

March 2007 7.82

April 2007 7.75

May 2007 7.58

* Relative to three-month moving average of sales. Return to text

As shown in the chart, during the forecast period, inventory declines to about 6.6 by June 2007, grows slightly to about 6.7 byJuly 2007, then declines steadily to about 4.5 by the end of 2008.

Bottom-left panelSales

A line chart shows the path of sales of existing and new homes since 1999. Each line shows a similarpath, with a rise to a peak in summer 2005, before decreasing, at times sharply, by June 2007. Newhomes sales begin around 880,000 in 1999, peak at 1.39 million in July 2005, and fall to 790,000 byJune 2007. Existing home sales were 4.68 million in January 1999, peak at 6.34 million in September2005, and are back to around 5 million in June 2007. Sales are expected to move a little lower overthe next few months, but then stabilize and begin to edge up by year-end 2007 and through 2008.

Bottom-right panelEstimated Valuation Errors For Single-Family Homes*

A line chart shows the estimated error, according to a staff model, of valuation going back to the late1970s. Overvaluation of single-family housing prices was close to 10 percent in 1980 before fallingto a 4 percent undervaluation in 1985. The path moved upward to a slight overvaluation (3.86percent) in 1989, then fell and remained in the negative from the end of 1990 to 1999:Q2.Overvaluation returned, with a sharp rise throughout the decade, to a peak of around 27 percent in2006.

* Deviation of log price-rent ratio from a linear trend, estimated over 1975:Q1-2003:Q3. Return to text

Exhibit 3Business Fixed Investment

Top-left panelSales of Medium and Heavy Trucks

Thousands of units, ratio scale

Period Sales Forecast

1999:Q1 511.24 ND

1999:Q2 506.97 ND

1999:Q3 527.50 ND

1999:Q4 539.25 ND

2000:Q1 521.71 ND

2000:Q2 499.92 ND

2000:Q3 437.09 ND

2000:Q4 383.34 ND

2001:Q1 391.23 ND

2001:Q2 358.26 ND

2001:Q3 328.12 ND

2001:Q4 321.73 ND

2002:Q1 304.16 ND

2002:Q2 323.81 ND

2002:Q3 337.72 ND

2002:Q4 322.80 ND

Period Sales Forecast

2003:Q1 288.17 ND

2003:Q2 311.66 ND

2003:Q3 340.92 ND

2003:Q4 370.44 ND

2004:Q1 399.39 ND

2004:Q2 402.07 ND

2004:Q3 439.74 ND

2004:Q4 478.79 ND

2005:Q1 493.03 ND

2005:Q2 482.00 ND

2005:Q3 503.16 ND

2005:Q4 512.83 ND

2006:Q1 548.03 ND

2006:Q2 534.10 ND

2006:Q3 533.23 ND

2006:Q4 566.72 ND

2007:Q1 469.65 ND

2007:Q2 ND 354.07

2007:Q3 ND 353.33

2007:Q4 ND 365.00

2008:Q1 ND 370.00

2008:Q2 ND 385.00

2008:Q3 ND 395.00

2008:Q4 ND 405.00

Top-right panelOrders and Shipments of Nondefense Capital Goods Excluding Aircraft

Billions of chained (2000) dollars, ratioscale

Period Orders Shipments

January 1999 56.81 57.08

February 1999 58.72 58.44

March 1999 60.12 58.59

April 1999 58.56 57.95

May 1999 60.20 59.46

June 1999 58.94 60.31

July 1999 61.80 60.52


August 1999 61.60 60.20

September 1999 63.74 60.78

October 1999 61.09 60.33

November 1999 61.74 59.70

December 1999 65.39 59.93

January 2000 64.27 61.86

February 2000 58.39 59.43

March 2000 63.36 62.27

April 2000 64.42 63.30

May 2000 63.88 63.04

June 2000 68.41 63.35

July 2000 64.18 63.19

August 2000 64.57 63.35

September 2000 66.18 64.80

October 2000 63.46 63.77

November 2000 62.92 63.32

December 2000 61.95 63.96

January 2001 62.09 62.40

February 2001 60.98 61.78

March 2001 58.59 61.06

April 2001 55.29 58.00

May 2001 58.03 58.08

June 2001 55.70 57.24

July 2001 54.23 55.47

August 2001 55.05 55.24

September 2001 50.99 53.47

October 2001 50.16 52.93

November 2001 52.20 51.40

December 2001 52.36 52.57

January 2002 46.46 50.37

February 2002 49.54 51.39

March 2002 46.84 51.24

April 2002 48.80 50.24

May 2002 51.14 51.99

June 2002 48.11 51.49

July 2002 49.22 50.81

August 2002 50.44 51.63


September 2002 47.76 51.45

October 2002 48.75 50.37

November 2002 48.82 50.59

December 2002 48.20 49.70

January 2003 48.87 49.25

February 2003 49.01 49.07

March 2003 51.92 49.73

April 2003 49.32 49.20

May 2003 51.07 49.60

June 2003 50.16 50.15

July 2003 49.76 50.33

August 2003 50.04 49.15

September 2003 52.13 51.29

October 2003 51.74 50.94

November 2003 52.11 51.03

December 2003 53.12 51.12

January 2004 48.61 50.05

February 2004 49.59 49.46

March 2004 54.31 51.68

April 2004 51.18 51.77

May 2004 51.51 50.82

June 2004 52.06 52.34

July 2004 52.57 52.67

August 2004 51.12 52.66

September 2004 55.87 53.87

October 2004 52.74 53.96

November 2004 53.75 53.32

December 2004 55.44 54.79

January 2005 57.78 56.53

February 2005 56.98 55.65

March 2005 56.58 55.94

April 2005 56.90 55.70

May 2005 56.70 56.55

June 2005 59.04 56.96

July 2005 56.97 56.29

August 2005 59.22 57.22

September 2005 59.28 58.11


October 2005 59.21 58.26

November 2005 59.07 58.58

December 2005 60.54 59.80

January 2006 61.99 60.20

February 2006 61.31 59.79

March 2006 63.85 61.07

April 2006 61.95 60.94

May 2006 62.74 61.06

June 2006 63.25 61.06

July 2006 63.29 61.25

August 2006 63.15 61.79

September 2006 66.21 61.31

October 2006 63.49 60.58

November 2006 62.87 61.08

December 2006 63.41 61.19

January 2007 60.60 58.65

February 2007 59.13 58.99

March 2007 61.86 59.92

April 2007 63.26 60.48

May 2007 61.36 60.34

Middle-left panelIndicators of Business Conditions

Indexes

Period Philadelphia Fed ISM

January 1999 18.6 52.4

February 1999 17.1 55.0

March 1999 19.5 55.9

April 1999 18.3 54.0

May 1999 19.0 57.8

June 1999 14.5 59.4

July 1999 10.9 54.6

August 1999 17.4 57.5

September 1999 10.2 63.5

October 1999 28.8 61.3

November 1999 20.1 63.1

December 1999 16.6 60.3


January 2000 4.4 60.4

February 2000 9.8 58.9

March 2000 16.9 56.2

April 2000 15.7 55.4

May 2000 14.2 51.5

June 2000 7.6 50.0

July 2000 7.8 52.0

August 2000 14.3 50.0

September 2000 13.8 48.9

October 2000 3.8 48.4

November 2000 2.6 49.1

December 2000 3.6 42.1

January 2001 -28.9 38.4

February 2001 -19.5 39.9

March 2001 -5.9 41.5

April 2001 -7.8 45.5

May 2001 -6.2 44.9

June 2001 -7.6 47.8

July 2001 -5.4 49.2

August 2001 -17.2 54.3

September 2001 -0.3 51.3

October 2001 -10.8 38.9

November 2001 -18.4 49.1

December 2001 -6.4 51.4

January 2002 8.3 55.2

February 2002 7.8 60.7

March 2002 8.6 63.8

April 2002 12.1 59.9

May 2002 12.1 61.8

June 2002 21.9 61.2

July 2002 7.0 51.9

August 2002 2.9 50.6

September 2002 5.1 52.9

October 2002 2.4 52.1

November 2002 10.1 49.9

December 2002 6.7 58.7

January 2003 10.4 58.2


February 2003 8.8 51.9

March 2003 -0.4 47.2

April 2003 -9.0 47.2

May 2003 1.5 53.4

June 2003 4.2 53.6

July 2003 11.4 56.8

August 2003 17.1 61.1

September 2003 20.6 60.8

October 2003 26.8 64.4

November 2003 22.3 69.1

December 2003 33.4 71.3

January 2004 33.0 70.0

February 2004 26.3 66.4

March 2004 26.0 65.9

April 2004 25.4 67.4

May 2004 23.1 64.5

June 2004 28.5 61.3

July 2004 36.2 63.0

August 2004 19.2 61.9

September 2004 28.0 57.7

October 2004 20.2 58.1

November 2004 21.0 59.8

December 2004 20.7 65.6

January 2005 10.3 57.1

February 2005 12.3 55.2

March 2005 15.3 57.5

April 2005 19.3 54.9

May 2005 16.5 52.8

June 2005 4.8 56.7

July 2005 7.2 59.5

August 2005 15.0 56.3

September 2005 1.3 61.0

October 2005 19.8 60.1

November 2005 13.2 59.4

December 2005 7.3 58.6

January 2006 11.5 57.9

February 2006 12.9 60.5


March 2006 21.1 58.4

April 2006 12.0 57.6

May 2006 3.5 54.8

June 2006 17.2 57.4

July 2006 9.9 55.6

August 2006 12.8 54.6

September 2006 0.2 54.2

October 2006 10.7 52.1

November 2006 -1.1 49.7

December 2006 -0.9 51.9

January 2007 1.3 50.3

February 2007 -0.5 54.9

March 2007 1.9 51.6

April 2007 2.8 58.5

May 2007 8.7 59.6

June 2007 18.3 ND

Middle-right panelOutlook for Real E&S

(Percent change, annual rate*)

20072008

H1 H2

Total 1.3 4.6 5.7

contributions

Motor vehicles -4.1 .2 .8

Aircraft 1.2 .2 .1

High-tech 5.1 3.4 3.8

Other -.9 .9 1.0

* 2008 is Q4/Q4; half years are either Q4/Q2 or Q2/Q4. Contributions for 2007:H2 do not add to total due torounding. Return to table

Bottom-left panelReal Business Output

Four-quarter percent change

Period Real Business Output Forecast

1999:Q1 4.93 ND

1999:Q2 5.13 ND

1999:Q3 5.22 ND

Period Real Business Output Forecast

1999:Q4 5.35 ND

2000:Q1 4.36 ND

2000:Q2 5.30 ND

2000:Q3 3.64 ND

2000:Q4 2.13 ND

2001:Q1 1.87 ND

2001:Q2 0.35 ND

2001:Q3 -0.17 ND

2001:Q4 -0.42 ND

2002:Q1 0.73 ND

2002:Q2 0.77 ND

2002:Q3 2.30 ND

2002:Q4 2.04 ND

2003:Q1 1.47 ND

2003:Q2 2.20 ND

2003:Q3 4.10 ND

2003:Q4 4.48 ND

2004:Q1 5.09 ND

2004:Q2 5.31 ND

2004:Q3 3.41 ND

2004:Q4 3.60 ND

2005:Q1 3.76 ND

2005:Q2 3.57 ND

2005:Q3 3.98 ND

2005:Q4 3.81 ND

2006:Q1 4.41 ND

2006:Q2 3.98 ND

2006:Q3 3.24 ND

2006:Q4 3.53 ND

2007:Q1 2.15 ND

2007:Q2 ND 2.33

2007:Q3 ND 2.56

2007:Q4 ND 2.43

2008:Q1 ND 2.88

2008:Q2 ND 2.73

2008:Q3 ND 2.75

2008:Q4 ND 2.88

Bottom-right panelUser Cost of Capital


Period Non-high-tech Non-high-tech Forecast High-tech High-tech Forecast

1999:Q1 1.77 ND -6.73 ND

1999:Q2 2.69 ND -5.20 ND

1999:Q3 4.60 ND -3.56 ND

1999:Q4 4.16 ND -3.32 ND

2000:Q1 2.11 ND -3.77 ND

2000:Q2 1.53 ND -3.97 ND

2000:Q3 -1.25 ND -5.59 ND

2000:Q4 -2.71 ND -6.58 ND

2001:Q1 -4.65 ND -9.26 ND

2001:Q2 -5.75 ND -11.04 ND

2001:Q3 -4.79 ND -11.50 ND

2001:Q4 -6.51 ND -12.94 ND

2002:Q1 -3.39 ND -10.69 ND

2002:Q2 -3.29 ND -10.10 ND

2002:Q3 -4.77 ND -10.12 ND

2002:Q4 -2.11 ND -8.58 ND

2003:Q1 -5.75 ND -11.26 ND

2003:Q2 -8.86 ND -12.82 ND

2003:Q3 -6.39 ND -12.62 ND

2003:Q4 -6.46 ND -13.05 ND

2004:Q1 -6.71 ND -11.66 ND

2004:Q2 -2.59 ND -9.39 ND

2004:Q3 -4.72 ND -8.77 ND

2004:Q4 -3.88 ND -6.50 ND

2005:Q1 -1.78 ND -5.63 ND

2005:Q2 -2.81 ND -5.72 ND

2005:Q3 -2.30 ND -5.28 ND

2005:Q4 -2.06 ND -5.67 ND

2006:Q1 -0.94 ND -6.08 ND

2006:Q2 1.33 ND -5.37 ND

2006:Q3 1.26 ND -6.11 ND

2006:Q4 -0.05 ND -7.35 ND

2007:Q1 -0.05 ND -6.34 ND

2007:Q2 ND -1.51 ND -6.86

Period Non-high-tech Non-high-tech Forecast High-tech High-tech Forecast

2007:Q3 ND 1.42 ND -5.13

2007:Q4 ND 1.79 ND -4.44

2008:Q1 ND 2.30 ND -4.67

2008:Q2 ND 1.43 ND -4.87

2008:Q3 ND -0.48 ND -6.05

2008:Q4 ND -0.53 ND -6.51

Exhibit 4Inflation (Part 1)

Top-left panelPCE Total


Period PCE Total Jan. GB June Forecast

2001:Q1 2.22 ND ND

2001:Q2 2.37 ND ND

2001:Q3 2.05 ND ND

2001:Q4 1.74 ND ND

2002:Q1 1.15 ND ND

2002:Q2 1.21 ND ND

2002:Q3 1.52 ND ND

2002:Q4 1.79 ND ND

2003:Q1 2.32 ND ND

2003:Q2 1.79 ND ND

2003:Q3 1.94 ND ND

2003:Q4 1.89 ND ND

2004:Q1 2.04 ND ND

2004:Q2 2.77 ND ND

2004:Q3 2.65 ND ND

2004:Q4 3.04 ND ND

2005:Q1 2.69 ND ND

2005:Q2 2.58 ND ND

2005:Q3 3.14 ND ND

2005:Q4 3.10 ND ND

2006:Q1 3.05 ND ND

2006:Q2 3.27 ND ND

Period PCE Total Jan. GB June Forecast

2006:Q3 2.83 ND ND

2006:Q4 1.85 1.90 ND

2007:Q1 2.21 1.87 ND

2007:Q2 ND 1.47 2.29

2007:Q3 ND 1.49 2.16

2007:Q4 ND 2.24 2.89

2008:Q1 ND 2.30 2.53

2008:Q2 ND 2.22 1.95

2008:Q3 ND 2.12 2.00

2008:Q4 ND 2.05 2.01

Top-right panelPCE Food Prices


Period PCE Food Prices Jan. GB June Forecast

2001:Q1 2.82 ND ND

2001:Q2 2.92 ND ND

2001:Q3 2.99 ND ND

2001:Q4 3.13 ND ND

2002:Q1 2.72 ND ND

2002:Q2 2.16 ND ND

2002:Q3 1.45 ND ND

2002:Q4 1.22 ND ND

2003:Q1 1.21 ND ND

2003:Q2 1.62 ND ND

2003:Q3 2.13 ND ND

2003:Q4 2.72 ND ND

2004:Q1 2.96 ND ND

2004:Q2 3.33 ND ND

2004:Q3 3.26 ND ND

2004:Q4 2.83 ND ND

2005:Q1 2.41 ND ND

2005:Q2 2.39 ND ND

2005:Q3 2.13 ND ND

2005:Q4 2.21 ND ND

2006:Q1 2.55 ND ND

2006:Q2 1.99 ND ND

Period PCE Food Prices Jan. GB June Forecast

2006:Q3 2.40 ND ND

2006:Q4 2.33 2.31 ND

2007:Q1 2.90 2.60 ND

2007:Q2 ND 2.99 3.62

2007:Q3 ND 2.86 3.51

2007:Q4 ND 2.97 3.60

2008:Q1 ND 2.62 2.96

2008:Q2 ND 2.39 2.42

2008:Q3 ND 2.28 2.29

2008:Q4 ND 2.21 2.22

Middle-left panelPCE Energy Prices


Period PCE Energy Prices Jan. GB June Forecast

2001:Q1 10.91 ND ND

2001:Q2 10.34 ND ND

2001:Q3 1.13 ND ND

2001:Q4 -9.94 ND ND

2002:Q1 -14.12 ND ND

2002:Q2 -10.54 ND ND

2002:Q3 -4.89 ND ND

2002:Q4 7.67 ND ND

2003:Q1 21.22 ND ND

2003:Q2 9.81 ND ND

2003:Q3 12.11 ND ND

2003:Q4 7.62 ND ND

2004:Q1 4.07 ND ND

2004:Q2 13.15 ND ND

2004:Q3 10.99 ND ND

2004:Q4 17.81 ND ND

2005:Q1 11.50 ND ND

2005:Q2 11.55 ND ND

2005:Q3 23.63 ND ND

2005:Q4 21.20 ND ND

2006:Q1 20.34 ND ND

2006:Q2 22.17 ND ND

Period PCE Energy Prices Jan. GB June Forecast

2006:Q3 10.25 ND ND

2006:Q4 -3.67 -3.91 ND

2007:Q1 -0.03 -5.32 ND

2007:Q2 ND -10.59 4.17

2007:Q3 ND -10.07 2.22

2007:Q4 ND 1.79 13.50

2008:Q1 ND 4.10 9.59

2008:Q2 ND 3.89 -1.07

2008:Q3 ND 2.84 0.24

2008:Q4 ND 2.20 1.19

Middle-right panelPCE Core Prices


Period PCE Core Prices Jan. GB June Forecast

2001:Q1 1.62 ND ND

2001:Q2 1.82 ND ND

2001:Q3 1.95 ND ND

2001:Q4 2.22 ND ND

2002:Q1 1.84 ND ND

2002:Q2 1.79 ND ND

2002:Q3 1.89 ND ND

2002:Q4 1.55 ND ND

2003:Q1 1.51 ND ND

2003:Q2 1.37 ND ND

2003:Q3 1.35 ND ND

2003:Q4 1.44 ND ND

2004:Q1 1.78 ND ND

2004:Q2 2.08 ND ND

2004:Q3 2.05 ND ND

2004:Q4 2.22 ND ND

2005:Q1 2.19 ND ND

2005:Q2 2.05 ND ND

2005:Q3 2.03 ND ND

2005:Q4 2.10 ND ND

2006:Q1 2.02 ND ND

2006:Q2 2.23 ND ND

Period PCE Core Prices Jan. GB June Forecast

2006:Q3 2.37 ND ND

2006:Q4 2.19 2.27 ND

2007:Q1 2.27 2.30 ND

2007:Q2 ND 2.17 1.93

2007:Q3 ND 2.17 1.93

2007:Q4 ND 2.16 2.02

2008:Q1 ND 2.13 1.94

2008:Q2 ND 2.08 2.12

2008:Q3 ND 2.04 2.09

2008:Q4 ND 2.02 2.05

Bottom-left panelNon-Market-Based PCE Prices

(Quarterly percent change, annual rate)

Jan. GB June GB Difference

2007: Q1 3.2 2.3 -.9

Q2 3.5 2.6 -.9

H2 3.5 3.4 -.1

Bottom-right panelTenants' Rent and OER

Three-month percent change, annual rate

Period Tenants' rent OER Difference

January 2001 4.15 3.43 -0.71

February 2001 4.35 3.63 -0.72

March 2001 4.56 4.03 -0.53

April 2001 4.76 4.22 -0.54

May 2001 5.19 4.61 -0.57

June 2001 4.94 4.60 -0.35

July 2001 4.93 4.38 -0.55

August 2001 4.47 4.56 0.09

September 2001 4.67 4.34 -0.32

October 2001 4.65 4.93 0.28

November 2001 4.63 4.91 0.28

December 2001 4.61 5.09 0.48

January 2002 4.38 4.67 0.29

February 2002 4.37 4.06 -0.31


March 2002 3.93 3.85 -0.08

April 2002 3.50 3.84 0.34

May 2002 2.87 3.63 0.77

June 2002 2.86 3.43 0.57

July 2002 3.06 3.22 0.17

August 2002 2.85 3.03 0.18

September 2002 2.63 3.21 0.58

October 2002 2.63 3.01 0.38

November 2002 3.23 3.19 -0.04

December 2002 3.23 2.80 -0.42

January 2003 3.63 2.99 -0.64

February 2003 3.21 2.60 -0.60

March 2003 3.20 2.22 -0.98

April 2003 2.79 1.29 -1.50

May 2003 2.98 1.29 -1.69

June 2003 2.57 0.73 -1.84

July 2003 2.57 1.47 -1.10

August 2003 2.36 1.65 -0.71

September 2003 2.76 2.58 -0.18

October 2003 2.16 2.76 0.60

November 2003 2.35 2.94 0.59

December 2003 2.15 2.56 0.42

January 2004 2.54 2.00 -0.53

February 2004 2.53 1.82 -0.72

March 2004 2.53 2.18 -0.35

April 2004 2.91 2.91 0.00

May 2004 3.10 2.90 -0.20

June 2004 3.49 2.90 -0.59

July 2004 3.28 2.16 -1.12

August 2004 3.27 2.34 -0.94

September 2004 2.88 2.15 -0.72

October 2004 2.68 2.15 -0.53

November 2004 2.09 1.78 -0.31

December 2004 2.66 1.78 -0.88

January 2005 3.04 2.32 -0.72

February 2005 3.42 2.85 -0.57

March 2005 3.03 2.85 -0.18


April 2005 3.02 2.48 -0.54

May 2005 3.01 2.12 -0.89

June 2005 3.00 1.94 -1.07

July 2005 3.19 2.11 -1.07

August 2005 2.80 2.11 -0.69

September 2005 2.98 2.46 -0.52

October 2005 2.97 2.28 -0.70

November 2005 3.53 2.45 -1.08

December 2005 3.33 2.80 -0.54

January 2006 2.76 2.97 0.20

February 2006 2.94 3.49 0.55

March 2006 3.31 3.66 0.35

April 2006 3.86 4.53 0.67

May 2006 4.03 4.87 0.84

June 2006 4.39 5.38 0.99

July 2006 4.56 5.01 0.45

August 2006 4.55 4.64 0.09

September 2006 4.53 4.10 -0.43

October 2006 4.69 4.08 -0.61

November 2006 4.68 4.24 -0.44

December 2006 4.84 4.05 -0.79

January 2007 4.77 3.49 -1.27

February 2007 5.06 3.16 -1.91

March 2007 4.67 3.08 -1.59

April 2007 4.10 2.99 -1.11

May 2007 3.52 2.13 -1.39

Exhibit 5Inflation (Part 2)

Top-left panelHave Inflation Expectations Drifted Up?

Have inflation expectations moved above levels that were typical from mid-1996 to mid-2004?During that period, core PCE inflation was mostly between 1 percent and 2 percent.

Answer varies by series.

Top-right panel

Reuters/Michigan Inflation Expectations, Next 12 Months

Period Percent

January 1995 3.0

February 1995 3.0

March 1995 3.2

April 1995 3.3

May 1995 3.0

June 1995 2.9

July 1995 2.9

August 1995 2.9

September 1995 2.8

October 1995 2.9

November 1995 2.8

December 1995 2.7

January 1996 2.8

February 1996 2.8

March 1996 2.9

April 1996 3.0

May 1996 3.1

June 1996 2.9

July 1996 3.0

August 1996 3.1

September 1996 3.2

October 1996 3.0

November 1996 3.0

December 1996 3.0

January 1997 3.0

February 1997 3.0

March 1997 2.8

April 1997 3.0

May 1997 2.9

June 1997 2.8

July 1997 2.7

August 1997 2.7

September 1997 2.8

October 1997 2.8

November 1997 2.9

Period Percent

December 1997 2.8

January 1998 2.3

February 1998 2.4

March 1998 2.5

April 1998 2.4

May 1998 2.6

June 1998 2.7

July 1998 2.6

August 1998 2.4

September 1998 2.3

October 1998 2.5

November 1998 2.3

December 1998 2.5

January 1999 2.7

February 1999 2.5

March 1999 2.7

April 1999 2.7

May 1999 2.8

June 1999 2.5

July 1999 2.7

August 1999 2.8

September 1999 2.7

October 1999 2.9

November 1999 2.9

December 1999 3.0

January 2000 3.0

February 2000 2.9

March 2000 3.2

April 2000 3.2

May 2000 3.0

June 2000 2.9

July 2000 3.0

August 2000 2.7

September 2000 2.9

October 2000 3.2

November 2000 2.9

December 2000 2.8

Period Percent

January 2001 3.0

February 2001 2.8

March 2001 2.8

April 2001 3.1

May 2001 3.2

June 2001 3.0

July 2001 2.6

August 2001 2.7

September 2001 2.8

October 2001 1.0

November 2001 0.4

December 2001 1.8

January 2002 1.9

February 2002 2.1

March 2002 2.7

April 2002 2.8

May 2002 2.7

June 2002 2.7

July 2002 2.6

August 2002 2.6

September 2002 2.5

October 2002 2.5

November 2002 2.4

December 2002 2.5

January 2003 2.5

February 2003 2.7

March 2003 3.1

April 2003 2.4

May 2003 2.0

June 2003 2.1

July 2003 1.7

August 2003 2.5

September 2003 2.8

October 2003 2.6

November 2003 2.7

December 2003 2.6

January 2004 2.7

Period Percent

February 2004 2.6

March 2004 2.9

April 2004 3.2

May 2004 3.3

June 2004 3.3

July 2004 3.0

August 2004 2.8

September 2004 2.8

October 2004 3.1

November 2004 2.8

December 2004 3.0

January 2005 2.9

February 2005 2.9

March 2005 3.2

April 2005 3.3

May 2005 3.2

June 2005 3.2

July 2005 3.0

August 2005 3.1

September 2005 4.3

October 2005 4.6

November 2005 3.3

December 2005 3.1

January 2006 3.0

February 2006 3.0

March 2006 3.0

April 2006 3.3

May 2006 4.0

June 2006 3.3

July 2006 3.2

August 2006 3.8

September 2006 3.1

October 2006 3.1

November 2006 3.0

December 2006 2.9

January 2007 3.0

February 2007 3.0

Period Percent

March 2007 3.0

April 2007 3.3

May 2007 3.3

June 2007 3.5

Note: Ranges defined using data from mid-1996 to mid-2004. 50% range: 2.5-2.9, 80% range: 2.3-3.1

Middle-left panelReuters/Michigan Inflation Expectations, Next 5-10 Years

Period Percent

January 1995 3.2

February 1995 3.2

March 1995 3.3

April 1995 3.5

May 1995 3.2

June 1995 3.1

July 1995 3.2

August 1995 3.1

September 1995 3.1

October 1995 3.2

November 1995 3.1

December 1995 3.1

January 1996 3.2

February 1996 3.3

March 1996 3.2

April 1996 3.0

May 1996 3.3

June 1996 3.1

July 1996 3.2

August 1996 3.3

September 1996 3.2

October 1996 3.0

November 1996 3.0

December 1996 3.0

January 1997 3.2

February 1997 3.1

March 1997 3.0

April 1997 2.9

Period Percent

May 1997 3.0

June 1997 3.1

July 1997 2.9

August 1997 3.0

September 1997 3.1

October 1997 3.0

November 1997 3.1

December 1997 3.1

January 1998 2.9

February 1998 2.9

March 1998 2.8

April 1998 2.7

May 1998 2.8

June 1998 2.9

July 1998 2.7

August 1998 2.7

September 1998 2.9

October 1998 2.8

November 1998 2.8

December 1998 2.9

January 1999 3.0

February 1999 2.8

March 1999 2.7

April 1999 2.8

May 1999 2.9

June 1999 2.8

July 1999 2.9

August 1999 2.8

September 1999 2.9

October 1999 2.8

November 1999 2.9

December 1999 2.9

January 2000 3.0

February 2000 2.9

March 2000 3.1

April 2000 2.8

May 2000 2.9

Period Percent

June 2000 2.8

July 2000 2.8

August 2000 2.9

September 2000 3.0

October 2000 3.0

November 2000 2.9

December 2000 3.0

January 2001 2.9

February 2001 3.0

March 2001 3.0

April 2001 3.1

May 2001 3.0

June 2001 3.0

July 2001 2.9

August 2001 3.0

September 2001 2.9

October 2001 2.7

November 2001 2.8

December 2001 3.0

January 2002 2.7

February 2002 2.8

March 2002 2.8

April 2002 2.8

May 2002 3.0

June 2002 2.8

July 2002 2.8

August 2002 2.9

September 2002 2.5

October 2002 2.8

November 2002 2.8

December 2002 2.8

January 2003 2.7

February 2003 2.7

March 2003 2.8

April 2003 2.7

May 2003 2.8

June 2003 2.7

Period Percent

July 2003 2.7

August 2003 2.7

September 2003 2.7

October 2003 2.8

November 2003 2.7

December 2003 2.8

January 2004 2.8

February 2004 2.9

March 2004 2.9

April 2004 2.7

May 2004 2.8

June 2004 2.9

July 2004 2.8

August 2004 2.7

September 2004 2.8

October 2004 2.8

November 2004 2.7

December 2004 2.8

January 2005 2.7

February 2005 2.8

March 2005 2.9

April 2005 3.0

May 2005 2.9

June 2005 2.8

July 2005 2.9

August 2005 2.8

September 2005 3.1

October 2005 3.2

November 2005 3.0

December 2005 3.1

January 2006 2.9

February 2006 2.9

March 2006 2.9

April 2006 3.1

May 2006 3.2

June 2006 2.9

July 2006 2.9

Period Percent

August 2006 3.2

September 2006 3.0

October 2006 3.1

November 2006 3.0

December 2006 3.0

January 2007 3.0

February 2007 2.9

March 2007 2.9

April 2007 3.1

May 2007 3.1

June 2007 3.0

50% range: 2.8-3.0, 80% range: 2.7-3.1

Middle-right panelSPF CPI Inflation Expectations, 1-Year Ahead

Period Percent

1995:Q1 3.41

1995:Q2 3.52

1995:Q3 3.27

1995:Q4 2.95

1996:Q1 2.77

1996:Q2 2.87

1996:Q3 3.00

1996:Q4 3.02

1997:Q1 3.06

1997:Q2 3.00

1997:Q3 2.85

1997:Q4 2.60

1998:Q1 2.26

1998:Q2 2.45

1998:Q3 2.47

1998:Q4 2.31

1999:Q1 2.17

1999:Q2 2.20

1999:Q3 2.38

1999:Q4 2.52

2000:Q1 2.46

Period Percent

2000:Q2 2.61

2000:Q3 2.71

2000:Q4 2.67

2001:Q1 2.49

2001:Q2 2.51

2001:Q3 2.60

2001:Q4 2.15

2002:Q1 2.20

2002:Q2 2.35

2002:Q3 2.29

2002:Q4 2.19

2003:Q1 2.12

2003:Q2 2.09

2003:Q3 1.82

2003:Q4 2.12

2004:Q1 1.63

2004:Q2 2.13

2004:Q3 2.30

2004:Q4 2.26

2005:Q1 2.25

2005:Q2 2.37

2005:Q3 2.44

2005:Q4 2.39

2006:Q1 2.43

2006:Q2 2.39

2006:Q3 2.63

2006:Q4 2.62

2007:Q1 2.46

2007:Q2 2.43

Note: SPF is the Survey of Professional Forecasters, conducted by FRB Philadelphia.

50% range: 2.17-2.60, 80% range: 2.09-3.00

Bottom-left panelUnemployment Rate

Percent


2003:Q1 5.90 ND ND


2003:Q2 6.10 ND ND

2003:Q3 6.10 ND ND

2003:Q4 5.80 ND ND

2004:Q1 5.70 ND ND

2004:Q2 5.60 ND ND

2004:Q3 5.40 ND ND

2004:Q4 5.40 ND ND

2005:Q1 5.30 ND ND

2005:Q2 5.10 ND ND

2005:Q3 5.00 ND ND

2005:Q4 5.00 ND ND

2006:Q1 4.70 ND ND

2006:Q2 4.70 ND ND

2006:Q3 4.70 ND ND

2006:Q4 4.50 ND ND

2007:Q1 4.49 4.49 ND

2007:Q2 ND 4.56 4.48

2007:Q3 ND 4.66 4.60

2007:Q4 ND 4.75 4.69

2008:Q1 ND 4.83 4.75

2008:Q2 ND 4.90 4.79

2008:Q3 ND 4.94 4.82

2008:Q4 ND 4.97 4.85

Staff NAIRU: 5.00

Bottom-right panelPCE Price Projection

(Percent change, Q4/Q4)

2007 2008

1. PCE price index 2.9 2.0

2. May GB (2.9) (2.1)

3. Core 2.0 2.0

4. May GB (2.3) (2.1)

5. Market based 1.8 1.7

6. May GB (2.0) (1.8)

Exhibit 6Corporate Earnings and Securities Prices

Top-left panelCorporate Earnings Growth


Period S&P 500 EPS NIPA, economic profits before tax

1989:Q1 19.72 7.08

1989:Q2 7.68 0.14

1989:Q3 -4.69 -3.45

1989:Q4 0.64 -8.41

1990:Q1 -10.98 -0.80

1990:Q2 -1.93 6.94

1990:Q3 0.82 2.22

1990:Q4 -4.15 2.19

1991:Q1 -8.33 5.16

1991:Q2 -15.15 -1.83

1991:Q3 -7.32 4.05

1991:Q4 -10.00 5.17

1992:Q1 7.27 8.00

1992:Q2 14.29 10.08

1992:Q3 7.02 -4.31

1992:Q4 15.74 11.07

1993:Q1 6.27 2.58

1993:Q2 8.12 8.38

1993:Q3 12.30 25.86

1993:Q4 17.92 17.03

1994:Q1 14.19 4.27

1994:Q2 13.87 11.35

1994:Q3 18.83 15.92

1994:Q4 20.62 11.11

1995:Q1 21.93 24.83

1995:Q2 21.45 14.53

1995:Q3 18.30 15.26

1995:Q4 10.69 11.15

1996:Q1 7.22 16.83

1996:Q2 8.46 14.19

1996:Q3 6.33 9.23


1996:Q4 12.50 11.53

1997:Q1 13.57 8.74

1997:Q2 8.86 10.28

1997:Q3 10.25 13.77

1997:Q4 6.96 9.08

1998:Q1 1.32 -2.79

1998:Q2 1.68 -7.81

1998:Q3 -6.55 -9.87

1998:Q4 -2.70 -10.03

1999:Q1 6.87 3.97

1999:Q2 10.10 6.98

1999:Q3 22.37 4.37

1999:Q4 21.10 9.55

2000:Q1 18.50 -1.37

2000:Q2 16.00 -1.92

2000:Q3 11.00 -3.63

2000:Q4 -2.70 -8.63

2001:Q1 -10.80 -6.48

2001:Q2 -20.10 -5.99

2001:Q3 -24.80 -11.98

2001:Q4 -22.40 -0.16

2002:Q1 -8.60 6.51

2002:Q2 5.30 10.36

2002:Q3 13.80 25.32

2002:Q4 16.00 20.57

2003:Q1 11.30 11.36

2003:Q2 8.70 10.64

2003:Q3 17.50 13.49

2003:Q4 25.40 12.59

2004:Q1 26.30 25.39

2004:Q2 24.80 23.74

2004:Q3 15.00 13.56

2004:Q4 18.50 14.71

2005:Q1 13.00 13.98

2005:Q2 14.20 13.49

2005:Q3 13.60 9.73

2005:Q4 13.30 12.85


2006:Q1 15.50 18.87

2006:Q2 16.50 18.54

2006:Q3 19.80 30.56

2006:Q4 11.10 18.30

2007:Q1 9.00 6.35

2007:Q2 4.40 ND

e - Q2 is the bottom-up forecast by equity analysts. Return to table

Source: I/B/E/S for S&P 500 earnings per share.

Top-right panelEarnings Forecast

(Percent change)

2007 2008

Analyst

S&P 500 8 11

Blue Chip 5 5

Staff

NIPA 5 1

1. Operating earnings per share Return to table

2. Economic profits before tax Return to table

Middle-left panelEquity Valuation for S&P 500

Percent

Period Trend E/P* Real Treasury perpetuity yield**

January 1986 9.36 6.41

February 1986 9.36 5.86

March 1986 8.76 4.74

April 1986 8.34 3.96

May 1986 8.48 4.36

June 1986 8.10 4.64

July 1986 8.00 4.32

August 1986 8.52 4.31

September 1986 7.97 4.83

October 1986 8.74 4.82

November 1986 8.31 4.52

December 1986 8.14 4.41

January 1987 8.39 4.09

e

1

2


February 1987 7.42 4.17

March 1987 7.16 4.07

April 1987 6.98 4.68

May 1987 7.06 5.03

June 1987 7.02 4.89

July 1987 6.71 4.63

August 1987 6.06 4.93

September 1987 6.81 5.55

October 1987 8.90 5.56

November 1987 8.47 4.95

December 1987 8.32 4.92

January 1988 8.18 4.91

February 1988 8.03 4.64

March 1988 7.67 4.84

April 1988 8.04 5.14

May 1988 8.35 5.45

June 1988 7.70 5.14

July 1988 7.90 5.34

August 1988 8.21 5.39

September 1988 8.01 5.03

October 1988 7.84 4.89

November 1988 8.30 4.90

December 1988 8.01 4.64

January 1989 7.76 4.54

February 1989 7.63 4.63

March 1989 7.64 4.76

April 1989 7.45 4.65

May 1989 7.29 4.54

June 1989 7.22 4.01

July 1989 7.04 4.11

August 1989 6.91 4.09

September 1989 6.99 4.10

October 1989 7.15 3.86

November 1989 7.26 3.79

December 1989 7.09 3.78

January 1990 7.42 4.41

February 1990 7.73 4.66


March 1990 7.68 4.69

April 1990 7.68 4.65

May 1990 7.47 4.62

June 1990 7.32 4.35

July 1990 7.40 4.47

August 1990 8.00 5.00

September 1990 8.67 5.19

October 1990 9.26 5.10

November 1990 8.70 4.79

December 1990 8.51 4.45

January 1991 8.95 4.57

February 1991 7.72 4.39

March 1991 7.66 4.65

April 1991 7.39 4.51

May 1991 7.88 4.54

June 1991 7.79 4.74

July 1991 7.70 4.69

August 1991 7.56 4.42

September 1991 7.65 4.25

October 1991 7.55 4.45

November 1991 7.48 4.52

December 1991 7.76 4.42

January 1992 7.08 4.32

February 1992 7.30 4.52

March 1992 7.29 4.61

April 1992 7.24 4.39

May 1992 7.17 4.37

June 1992 7.43 4.48

July 1992 7.18 4.65

August 1992 7.16 4.45

September 1992 7.14 4.59

October 1992 7.32 4.82

November 1992 7.09 4.62

December 1992 6.95 4.37

January 1993 6.93 4.46

February 1993 6.94 4.32

March 1993 6.71 4.06


April 1993 6.72 3.92

May 1993 6.75 4.01

June 1993 6.77 3.86

July 1993 6.74 3.85

August 1993 6.66 3.50

September 1993 6.59 3.37

October 1993 6.61 3.34

November 1993 6.57 3.60

December 1993 6.63 3.57

January 1994 6.47 3.61

February 1994 6.50 3.72

March 1994 6.57 4.04

April 1994 6.93 4.32

May 1994 6.84 4.43

June 1994 6.76 4.52

July 1994 6.96 4.56

August 1994 6.74 4.51

September 1994 6.71 4.83

October 1994 6.72 5.00

November 1994 6.81 4.96

December 1994 7.01 4.55

January 1995 6.82 4.70

February 1995 6.65 4.61

March 1995 6.59 4.57

April 1995 6.46 4.55

May 1995 6.23 4.11

June 1995 6.16 3.71

July 1995 6.05 4.03

August 1995 6.00 4.17

September 1995 5.85 3.88

October 1995 5.82 3.84

November 1995 5.81 3.69

December 1995 5.60 3.48

January 1996 5.80 3.50

February 1996 5.42 3.82

March 1996 5.62 4.20

April 1996 5.66 4.38


May 1996 5.51 4.48

June 1996 5.60 4.54

July 1996 5.91 4.47

August 1996 5.72 4.35

September 1996 5.62 4.47

October 1996 5.50 4.27

November 1996 5.35 3.98

December 1996 5.40 4.03

January 1997 5.20 4.30

February 1997 4.96 4.17

March 1997 5.18 4.40

April 1997 5.38 4.65

May 1997 4.96 4.46

June 1997 4.71 4.32

July 1997 4.51 3.87

August 1997 4.63 3.94

September 1997 4.57 3.80

October 1997 4.51 3.96

November 1997 4.65 3.79

December 1997 4.60 3.62

January 1998 4.68 3.53

February 1998 4.39 3.61

March 1998 4.21 3.64

April 1998 4.13 3.71

May 1998 4.17 3.69

June 1998 4.26 3.39

July 1998 4.05 3.44

August 1998 4.38 3.36

September 1998 4.64 3.24

October 1998 4.88 3.29

November 1998 4.32 3.37

December 1998 4.29 3.25

January 1999 4.08 3.50

February 1999 4.15 3.65

March 1999 3.94 3.85

April 1999 3.88 3.65

May 1999 3.87 3.84


June 1999 3.94 4.03

July 1999 3.77 3.94

August 1999 3.98 4.02

September 1999 4.05 4.14

October 1999 4.18 4.25

November 1999 3.83 4.09

December 1999 3.85 4.26

January 2000 3.76 4.34

February 2000 3.97 3.76

March 2000 3.99 3.64

April 2000 3.91 3.48

May 2000 3.89 3.78

June 2000 3.86 3.61

July 2000 3.86 3.56

August 2000 3.89 3.38

September 2000 3.91 3.55

October 2000 4.36 3.58

November 2000 4.24 3.52

December 2000 4.37 3.30

January 2001 4.51 3.41

February 2001 4.59 3.37

March 2001 5.22 3.31

April 2001 4.96 3.69

May 2001 4.81 3.78

June 2001 5.03 3.67

July 2001 5.21 3.60

August 2001 5.38 3.46

September 2001 6.41 3.59

October 2001 5.94 3.38

November 2001 5.63 3.25

December 2001 5.61 3.66

January 2002 5.72 3.64

February 2002 5.78 3.56

March 2002 5.61 3.82

April 2002 5.75 3.77

May 2002 5.93 3.79

June 2002 6.42 3.75


July 2002 7.31 3.73

August 2002 6.91 3.49

September 2002 7.59 3.19

October 2002 7.26 3.48

November 2002 7.05 3.47

December 2002 7.20 3.43

January 2003 6.95 3.40

February 2003 7.59 3.25

March 2003 7.25 3.25

April 2003 7.10 3.32

May 2003 6.69 2.93

June 2003 6.36 2.79

July 2003 6.43 3.34

August 2003 6.36 3.78

September 2003 6.05 3.61

October 2003 5.97 3.62

November 2003 6.05 3.53

December 2003 5.74 3.45

January 2004 5.51 3.38

February 2004 5.43 3.29

March 2004 5.55 3.11

April 2004 5.51 3.49

May 2004 5.71 3.69

June 2004 5.50 3.65

July 2004 5.66 3.47

August 2004 5.72 3.33

September 2004 5.57 3.16

October 2004 5.69 3.09

November 2004 5.32 3.08

December 2004 5.25 3.03

January 2005 5.40 2.85

February 2005 5.32 2.58

March 2005 5.40 2.79

April 2005 5.57 2.62

May 2005 5.47 2.42

June 2005 5.42 2.16

July 2005 5.35 2.22


August 2005 5.47 2.25

September 2005 5.47 2.28

October 2005 5.75 2.45

November 2005 5.49 2.51

December 2005 5.42 2.41

January 2006 5.40 2.31

February 2006 5.43 2.31

March 2006 5.41 2.51

April 2006 5.44 2.89

May 2006 5.71 3.02

June 2006 5.80 2.91

July 2006 5.90 2.86

August 2006 5.74 2.72

September 2006 5.71 2.56

October 2006 5.57 2.57

November 2006 5.50 2.40

December 2006 5.46 2.42

January 2007 5.52 2.71

February 2007 5.46 2.71

March 2007 5.78 2.63

April 2007 5.54 2.72

May 2007 5.44 2.75

June 2007 5.47 3.01

+ - Denoted latest observation using daily interest rates and stock prices and latest earnings data from I/B/E/S. Return to table

* Estimated using analyst year-ahead earnings from I/B/E/S. Return to table

Middle-right panel12-Month Forward Price-Earnings Ratio

Ratio

Period S&P 500 Small-cap median*

1988:Q1 11.07 11.35

1988:Q2 10.73 10.54

1988:Q3 10.05 10.52

1988:Q4 9.88 9.82

1989:Q1 10.20 11.03

1989:Q2 10.99 11.11

1989:Q3 11.69 11.48

+ +


1989:Q4 12.01 10.53

1990:Q1 11.54 10.78

1990:Q2 12.44 10.95

1990:Q3 10.82 8.91

1990:Q4 11.68 8.80

1991:Q1 13.68 12.11

1991:Q2 13.78 12.05

1991:Q3 14.09 12.06

1991:Q4 13.81 11.76

1992:Q1 14.69 15.00

1992:Q2 13.95 12.38

1992:Q3 14.31 12.86

1992:Q4 14.60 13.73

1993:Q1 14.98 14.93

1993:Q2 14.59 13.75

1993:Q3 14.78 14.19

1993:Q4 14.38 14.30

1994:Q1 14.27 15.36

1994:Q2 13.45 13.65

1994:Q3 13.11 13.64

1994:Q4 12.06 12.15

1995:Q1 12.49 12.98

1995:Q2 13.00 13.59

1995:Q3 13.67 15.13

1995:Q4 14.25 14.33

1996:Q1 14.73 14.93

1996:Q2 14.63 15.87

1996:Q3 15.15 15.57

1996:Q4 15.73 15.85

1997:Q1 16.50 15.49

1997:Q2 18.18 16.27

1997:Q3 18.85 18.52

1997:Q4 18.83 16.87

1998:Q1 21.31 18.75

1998:Q2 21.36 16.92

1998:Q3 19.95 13.73

1998:Q4 22.25 14.59


1999:Q1 24.55 14.30

1999:Q2 24.13 15.08

1999:Q3 23.19 15.40

1999:Q4 24.00 15.14

2000:Q1 23.20 16.29

2000:Q2 23.60 16.49

2000:Q3 23.43 16.98

2000:Q4 21.91 15.39

2001:Q1 19.77 16.52

2001:Q2 21.71 18.63

2001:Q3 18.40 16.48

2001:Q4 21.57 21.82

2002:Q1 20.72 22.55

2002:Q2 18.08 19.04

2002:Q3 15.71 15.94

2002:Q4 16.09 16.21

2003:Q1 15.67 14.91

2003:Q2 17.66 18.51

2003:Q3 17.37 20.21

2003:Q4 17.40 20.31

2004:Q1 17.43 20.63

2004:Q2 16.45 18.77

2004:Q3 15.82 18.19

2004:Q4 16.32 20.11

2005:Q1 15.65 19.09

2005:Q2 15.43 18.94

2005:Q3 14.97 19.38

2005:Q4 15.00 18.74

2006:Q1 15.08 19.87

2006:Q2 13.71 17.35

2006:Q3 14.28 18.21

2006:Q4 14.84 18.92

2007:Q1 14.47 18.80

2007:Q2 15.21 19.51

* Set of firms approximating the Russell 2000. Return to table

Source: I/B/E/S.

Bottom-left panel

Decomposition of High-Yield Spread

Percent

Period High-yield spread* Compensation for expected loss**

1990:Q1 6.98 5.13

1990:Q2 6.93 6.48

1990:Q3 8.78 6.75

1990:Q4 9.89 5.93

1991:Q1 7.64 4.59

1991:Q2 6.54 4.06

1991:Q3 6.83 3.09

1991:Q4 7.08 2.80

1992:Q1 5.00 2.73

1992:Q2 5.01 2.64

1992:Q3 5.36 2.40

1992:Q4 5.19 2.41

1993:Q1 5.25 2.38

1993:Q2 4.72 1.97

1993:Q3 4.97 1.91

1993:Q4 4.30 1.62

1994:Q1 3.67 1.90

1994:Q2 3.50 1.35

1994:Q3 3.42 1.81

1994:Q4 3.49 2.24

1995:Q1 3.69 2.35

1995:Q2 4.02 2.39

1995:Q3 4.08 2.18

1995:Q4 4.42 1.91

1996:Q1 3.69 1.57

1996:Q2 3.52 1.62

1996:Q3 3.21 1.78

1996:Q4 3.39 1.69

1997:Q1 3.00 1.93

1997:Q2 2.91 1.91

1997:Q3 2.91 2.06

1997:Q4 3.29 2.14

1998:Q1 3.12 2.59

1998:Q2 3.68 2.84

Period High-yield spread* Compensation for expected loss**

1998:Q3 6.06 2.75

1998:Q4 5.79 3.66

1999:Q1 5.22 3.46

1999:Q2 4.77 3.57

1999:Q3 5.01 3.90

1999:Q4 4.57 3.87

2000:Q1 5.80 4.29

2000:Q2 6.11 4.13

2000:Q3 6.67 4.70

2000:Q4 8.92 5.51

2001:Q1 7.97 5.96

2001:Q2 7.92 5.54

2001:Q3 9.69 5.04

2001:Q4 7.92 4.46

2002:Q1 6.77 3.29

2002:Q2 8.76 3.07

2002:Q3 10.28 2.65

2002:Q4 8.67 2.79

2003:Q1 7.60 2.90

2003:Q2 6.14 2.46

2003:Q3 5.46 2.10

2003:Q4 4.25 2.11

2004:Q1 4.52 1.92

2004:Q2 4.09 1.96

2004:Q3 4.11 1.69

2004:Q4 3.49 1.84

2005:Q1 3.82 1.86

2005:Q2 4.25 1.84

2005:Q3 3.94 1.60

2005:Q4 4.06 1.64

2006:Q1 3.46 1.75

2006:Q2 3.57 1.36

2006:Q3 3.71 1.33

2006:Q4 3.16 1.63

2007:Q1 3.22 1.54

2007:Q2 3.00 1.76

* Yield on Merrill Lynch Master II less comparable maturity Treasury. Return to table

+

** Estimated from staff model of bond defaults and losses. Return to table

+ - Observation for Q2 is June 26. Return to table

Bottom-right panelDebt-to-Assets for Nonfinancial Corporations

Percent

Period Investment grade Speculative grade

1987 24.56 44.96

1988 25.95 51.39

1989 27.07 52.91

1990 27.30 54.66

1991 27.26 52.18

1992 27.17 51.10

1993 25.04 45.43

1994 24.14 43.70

1995 23.62 43.42

1996 23.37 41.95

1997 24.95 42.67

1998 26.07 50.75

1999 26.47 48.93

2000 26.40 45.74

2001 26.74 44.98

2002 26.28 46.25

2003 23.63 44.08

2004 21.97 42.44

2005 21.70 36.81

2006 21.41 39.07

2007 21.26 38.62

Note: 2007 data are Q1 preliminary estimates.

Source: Compustat.

Exhibit 7Leveraging of Nonfinancial Corporations

Top-left panelShareholder Payouts

Billions of dollars, annual rate

Period Cash mergers Share repurchases Dividends Sum

Period Cash mergers Share repurchases Dividends Sum

2002 54.53 127.44 98.02 279.99

2003 54.36 131.08 116.44 301.88

2004 86.77 204.35 165.63 456.75

2005 180.26 330.34 162.10 672.70

2006:H1 275.46 435.05 173.80 884.31

2006:H2 314.88 430.44 193.32 938.64

2007:Q1 314.64 459.96 183.96 958.56

Note: Dividend and share repurchases for 2006:H2 and 2007:Q1 are preliminary.

Top-right panelShare Repurchases, 2005-2006

(Ratios to assets, percent)

Repurchases

Greater than 5 0 to 5

Earnings 9 6

Change in debt 2 -1

Debt 22 26

Note: Sample of 1,900 firm-year observations for repurchases of 0 to 5 percent and 350 for greater than 5 percent.

Source: Compustat.

Middle-left panelSpeculative-Grade Bond Issuance for M&A


Period LBOs Other M&A Sum

2002 0.23 7.43 7.66

2003 9.69 8.45 18.14

2004 19.94 10.64 30.58

2005 20.46 10.51 30.97

2006:H1 34.94 14.22 49.16

2006:H2 39.38 16.03 55.41

2007:Q1 38.93 46.91 85.84

2007:Q2 53.97 20.02 73.99

e - Staff estimate based on data through May. Return to table

Source: Merrill Lynch and Securities Data Company.

Middle-right panelSpeculative-Grade Loan Origination for M&A*

e


Period LBOs Other M&A Sum

2002 15 40 55

2003 31 29 60

2004 65 69 134

2005 90 100 190

2006:H1 85 105 190

2006:H2 123 107 230

2007:Q1 201 331 532

2007:Q2 331 133 464

* Includes unrated commitments and loans. Return to text

e - Staff estimate based on data through mid-June. Return to table

Source: DealScan.

Bottom-left panelAsset Returns

MonthlyReturn over prior 12 months

Period Loans* High-yield bonds**

January 1996 8.4 19.1

February 1996 8.1 16.2

March 1996 8.1 14.4

April 1996 7.9 12.0

May 1996 7.4 9.6

June 1996 7.3 9.4

July 1996 7.4 8.7

August 1996 7.3 9.4

September 1996 7.2 10.5

October 1996 7.1 10.6

November 1996 7.5 11.6

December 1996 7.2 10.8

January 1997 7.3 9.8

February 1997 7.4 11.1

March 1997 7.7 10.1

April 1997 7.8 11.2

May 1997 7.9 12.6

June 1997 8.0 13.7

July 1997 7.9 15.8

August 1997 8.0 14.4

e


September 1997 8.1 13.9

October 1997 8.0 13.5

November 1997 7.8 12.5

December 1997 8.0 12.6

January 1998 7.9 13.4

February 1998 7.7 12.3

March 1998 7.5 14.6

April 1998 7.7 13.8

May 1998 7.7 12.3

June 1998 7.5 11.2

July 1998 7.3 9.2

August 1998 6.8 4.3

September 1998 5.7 2.8

October 1998 4.5 0.1

November 1998 4.8 4.4

December 1998 5.2 3.2

January 1999 4.9 3.0

February 1999 3.9 1.9

March 1999 3.7 2.1

April 1999 3.7 3.5

May 1999 4.3 2.0

June 1999 4.5 1.2

July 1999 4.6 0.7

August 1999 4.1 4.7


October 1999 5.0 5.6

November 1999 4.9 1.8

December 1999 4.6 2.5

January 2000 5.3 0.8

February 2000 6.1 1.7

March 2000 4.7 -0.9

April 2000 4.3 -2.8

May 2000 3.9 -3.1

June 2000 3.6 -0.9

July 2000 3.6 -0.5

August 2000 4.5 1.5



October 2000 5.3 -1.6

November 2000 4.8 -6.7

December 2000 4.9 -5.1

January 2001 4.5 1.7

February 2001 5.0 3.0

March 2001 5.9 2.4

April 2001 5.1 1.1

May 2001 5.5 4.1

June 2001 5.0 -0.5

July 2001 4.6 0.6

August 2001 4.8 0.4

September 2001 2.6 -5.6

October 2001 1.0 0.8

November 2001 2.3 8.1

December 2001 2.7 5.0

January 2002 2.6 -0.7

February 2002 1.4 -3.6

March 2002 2.4 1.0

April 2002 3.9 3.9

May 2002 2.7 1.4

June 2002 1.0 -3.7

July 2002 -0.8 -9.2

August 2002 -1.8 -7.5

September 2002 0.3 -2.2

October 2002 0.5 -6.2

November 2002 0.7 -3.5

December 2002 1.2 -1.2

January 2003 2.0 1.2

February 2003 2.9 3.9

March 2003 2.1 4.0

April 2003 2.4 8.2

May 2003 3.8 10.1

June 2003 6.7 20.7

July 2003 8.9 23.2

August 2003 9.4 22.0

September 2003 10.2 26.2

October 2003 12.4 29.2


November 2003 11.4 24.3

December 2003 10.5 25.2

January 2004 10.2 23.8

February 2004 10.0 22.4

March 2004 10.1 20.4

April 2004 9.1 13.9

May 2004 8.0 11.2

June 2004 7.2 9.9

July 2004 6.9 12.6

August 2004 6.8 13.1

September 2004 6.2 11.8

October 2004 5.8 11.6

November 2004 5.6 11.3

December 2004 5.5 10.4

January 2005 5.0 8.7

February 2005 5.2 10.3

March 2005 5.3 6.9

April 2005 4.9 6.4

May 2005 4.8 9.8

June 2005 4.8 10.3

July 2005 5.3 10.5

August 2005 5.8 9.0


October 2005 5.7 4.0

November 2005 5.5 3.4

December 2005 5.5 2.8

January 2006 6.1 4.5

February 2006 5.8 3.7

March 2006 5.7 7.1

April 2006 6.1 8.8

May 2006 6.2 6.9

June 2006 6.2 4.6

July 2006 5.7 4.1

August 2006 5.2 5.4


October 2006 5.3 9.9

November 2006 5.5 11.0


December 2006 5.5 11.2

* Total returns on the CSFB Leveraged Loan Index. Return to table

** Total returns on the Merrill Lynch Master II Index of high-yield bonds. Return to table

Sharpe ratio

Loans .95

HY bonds .58

Bottom-right panelRisky Debt to Total Outstanding Debt

Bonds rated B-and belowQuarter-end

Period Percent

1990:Q1 7.55

1990:Q2 7.16

1990:Q3 7.28

1990:Q4 7.02

1991:Q1 5.80

1991:Q2 5.46

1991:Q3 5.43

1991:Q4 5.15

1992:Q1 4.47

1992:Q2 4.42

1992:Q3 4.17

1992:Q4 4.21

1993:Q1 4.01

1993:Q2 4.27

1993:Q3 4.60

1993:Q4 4.69

1994:Q1 4.82

1994:Q2 4.77

1994:Q3 4.74

1994:Q4 5.02

1995:Q1 4.85

1995:Q2 4.80

1995:Q3 4.98

1995:Q4 4.97

Period Percent

1996:Q1 4.77

1996:Q2 4.78

1996:Q3 4.77

1996:Q4 4.64

1997:Q1 4.68

1997:Q2 5.07

1997:Q3 5.44

1997:Q4 5.67

1998:Q1 5.76

1998:Q2 6.11

1998:Q3 5.88

1998:Q4 5.88

1999:Q1 5.97

1999:Q2 5.81

1999:Q3 5.73

1999:Q4 5.51

2000:Q1 5.53

2000:Q2 5.39

2000:Q3 5.50

2000:Q4 5.42

2001:Q1 5.24

2001:Q2 4.93

2001:Q3 4.76

2001:Q4 4.02

2002:Q1 3.76

2002:Q2 4.25

2002:Q3 4.59

2002:Q4 5.21

2003:Q1 5.29

2003:Q2 5.50

2003:Q3 5.07

2003:Q4 5.60

2004:Q1 6.23

2004:Q2 6.33

2004:Q3 5.96

2004:Q4 5.56

2005:Q1 5.54

Period Percent

2005:Q2 5.51

2005:Q3 5.42

2005:Q4 4.89

2006:Q1 5.46

2006:Q2 5.15

2006:Q3 5.30

2006:Q4 5.45

2007:Q1 5.42

Adversely ratedsyndicated loancommitments*Annual

Period Percent

1990 13.20

1991 16.00

1992 15.40

1993 11.41

1994 7.57

1995 4.42

1996 3.66

1997 2.91

1998 2.55

1999 3.76

2000 5.11

2001 9.41

2002 12.62

2003 12.62

2004 6.91

2005 4.82

2006 5.08

2007 5.40

* Loans rated by examiners that are either special mention, substandard, doubtful, or loss. Return to table

p - Preliminary. Return to table

Source: Shared National Credit Data and Moody's.

Exhibit 8

p

Household Financial Conditions

Top-left panelNet Worth

Quarter-endRatio to disposable income

Period Net Worth Forecast

1996:Q1 5.07 ND

1996:Q2 5.10 ND

1996:Q3 5.11 ND

1996:Q4 5.21 ND

1997:Q1 5.17 ND

1997:Q2 5.41 ND

1997:Q3 5.53 ND

1997:Q4 5.52 ND

1998:Q1 5.70 ND

1998:Q2 5.71 ND

1998:Q3 5.41 ND

1998:Q4 5.70 ND

1999:Q1 5.76 ND

1999:Q2 5.91 ND

1999:Q3 5.76 ND

1999:Q4 6.15 ND

2000:Q1 6.10 ND

2000:Q2 5.96 ND

2000:Q3 5.88 ND

2000:Q4 5.66 ND

2001:Q1 5.38 ND

2001:Q2 5.52 ND

2001:Q3 5.11 ND

2001:Q4 5.37 ND

2002:Q1 5.26 ND

2002:Q2 5.02 ND

2002:Q3 4.81 ND

2002:Q4 4.93 ND

2003:Q1 4.88 ND

2003:Q2 5.05 ND

2003:Q3 5.06 ND

2003:Q4 5.28 ND

Period Net Worth Forecast

2004:Q1 5.28 ND

2004:Q2 5.29 ND

2004:Q3 5.28 ND

2004:Q4 5.38 ND

2005:Q1 5.44 ND

2005:Q2 5.51 ND

2005:Q3 5.60 ND

2005:Q4 5.61 ND

2006:Q1 5.67 ND

2006:Q2 5.65 ND

2006:Q3 5.67 ND

2006:Q4 5.73 ND

2007:Q1 5.67 ND

2007:Q2 ND 5.77

2007:Q3 ND 5.74

2007:Q4 ND 5.70

2008:Q1 ND 5.65

2008:Q2 ND 5.62

2008:Q3 ND 5.58

2008:Q4 ND 5.54

Top-right panelHousehold Delinquency Rates

Percent

Period Residential mortgagesCredit card loans

at commercial banksNonrevolving consumer loans

at commercial banks

1996:Q1 0.71 4.04 2.87

1996:Q2 0.63 4.26 2.95

1996:Q3 0.60 4.46 3.04

1996:Q4 0.59 4.59 3.06

1997:Q1 0.57 4.68 3.10

1997:Q2 0.58 4.72 3.10

1997:Q3 0.57 4.68 3.05

1997:Q4 0.61 4.78 3.07

1998:Q1 0.62 4.74 3.08

1998:Q2 0.61 4.74 3.14

1998:Q3 0.62 4.71 3.15

Period Residential mortgagesCredit card loans

at commercial banksNonrevolving consumer loans

at commercial banks

1998:Q4 0.60 4.70 3.13

1999:Q1 0.62 4.64 3.24

1999:Q2 0.61 4.47 3.16

1999:Q3 0.59 4.54 3.02

1999:Q4 0.58 4.50 2.95

2000:Q1 0.57 4.39 2.92

2000:Q2 0.56 4.51 2.94

2000:Q3 0.59 4.53 2.98

2000:Q4 0.66 4.56 3.05

2001:Q1 0.69 4.81 2.97

2001:Q2 0.77 4.95 2.97

2001:Q3 0.82 5.00 3.09

2001:Q4 0.83 4.69 3.07

2002:Q1 0.82 4.94 2.87

2002:Q2 0.90 4.79 2.83

2002:Q3 0.94 4.89 2.79

2002:Q4 0.88 4.84 2.70

2003:Q1 0.86 4.68 2.79

2003:Q2 0.95 4.53 2.69

2003:Q3 0.89 4.23 2.60

2003:Q4 0.83 4.43 2.62

2004:Q1 0.90 4.21 2.52

2004:Q2 0.87 4.14 2.52

2004:Q3 0.85 4.07 2.46

2004:Q4 0.86 4.03 2.34

2005:Q1 0.87 3.72 2.38

2005:Q2 0.85 3.66 2.32

2005:Q3 0.83 3.88 2.13

2005:Q4 1.02 3.53 2.13

2006:Q1 1.01 3.91 2.11

2006:Q2 0.91 4.11 2.16

2006:Q3 0.94 4.09 2.27

2006:Q4 0.96 3.94 2.29

2007:Q1 0.98 4.06 2.30

Sources: For credit cards and nonrevolving, Call Report; for mortgages, MBA.

Percent

PeriodAuto loans at domesticauto finance companies

January 1996 2.98

February 1996 3.12

March 1996 2.89

April 1996 3.16

May 1996 3.26

June 1996 3.37

July 1996 3.27

August 1996 3.31

September 1996 3.41

October 1996 3.43

November 1996 3.43

December 1996 3.50

January 1997 3.52

February 1997 3.53

March 1997 3.65

April 1997 3.60

May 1997 3.52

June 1997 3.54

July 1997 3.55

August 1997 3.48

September 1997 3.31

October 1997 3.17

November 1997 3.23

December 1997 3.06

January 1998 2.99

February 1998 2.92

March 1998 2.92

April 1998 2.86

May 1998 2.84

June 1998 2.79

July 1998 2.53

August 1998 2.82

September 1998 2.74

October 1998 2.67

November 1998 2.84


December 1998 2.56

January 1999 2.67

February 1999 2.55

March 1999 2.56

April 1999 2.44

May 1999 2.33

June 1999 2.32

July 1999 2.23

August 1999 2.23

September 1999 2.25

October 1999 2.27

November 1999 2.25

December 1999 2.26

January 2000 2.28

February 2000 2.23

March 2000 2.03

April 2000 2.17

May 2000 2.24

June 2000 2.18

July 2000 2.23

August 2000 2.21

September 2000 2.15

October 2000 2.22

November 2000 2.20

December 2000 2.25

January 2001 2.27

February 2001 2.29

March 2001 2.18

April 2001 2.26

May 2001 2.33

June 2001 2.37

July 2001 2.39

August 2001 2.32

September 2001 2.38

October 2001 2.35

November 2001 2.25


December 2001 2.23

January 2002 2.14

February 2002 2.15

March 2002 2.08

April 2002 2.10

May 2002 2.04

June 2002 2.04

July 2002 2.06

August 2002 2.07

September 2002 2.09

October 2002 2.07

November 2002 2.11

December 2002 2.12

January 2003 2.14

February 2003 2.16

March 2003 2.25

April 2003 2.19

May 2003 2.18

June 2003 2.15

July 2003 2.08

August 2003 2.07

September 2003 2.04

October 2003 2.02

November 2003 2.01

December 2003 2.01

January 2004 2.05

February 2004 2.09

March 2004 1.98

April 2004 2.03

May 2004 2.02

June 2004 2.04

July 2004 1.97

August 2004 2.06

September 2004 2.01

October 2004 1.99

November 2004 2.01


December 2004 2.02

January 2005 2.04

February 2005 2.04

March 2005 2.06

April 2005 2.12

May 2005 2.02

June 2005 2.09

July 2005 2.19

August 2005 2.18

September 2005 2.23

October 2005 2.33

November 2005 2.29

December 2005 2.25

January 2006 2.13

February 2006 2.21

March 2006 2.23

April 2006 2.28

May 2006 2.34

June 2006 2.37

July 2006 2.34

August 2006 2.30

September 2006 2.28

October 2006 2.29

November 2006 2.24

December 2006 2.26

January 2007 2.17

February 2007 2.34

March 2007 2.34

April 2007 2.34

Source: Federal Reserve.

Middle-left panelSerious Mortgage Delinquency Rates

Percent of loans

PeriodPrime and

near-prime,fixed-rate

Prime andnear-prime,

adjustable-rate

Subprime,fixed-rate

Subprime,adjustable-rate

PeriodPrime and



adjustable-rate

Subprime,fixed-rate


January 2001 0.97 1.62 6.96 9.43

February 2001 0.97 1.63 6.97 9.48

March 2001 0.94 1.59 6.84 9.28

April 2001 0.93 1.63 6.77 9.20

May 2001 0.92 1.62 7.24 9.19

June 2001 0.95 1.65 7.64 9.51

July 2001 0.98 1.68 7.70 9.67

August 2001 1.00 1.69 7.72 9.94

September 2001 1.05 1.76 8.10 10.19

October 2001 1.06 1.77 8.09 10.28

November 2001 1.09 1.80 8.29 10.50

December 2001 1.13 1.85 8.41 10.55

January 2002 1.15 1.90 8.60 10.63

February 2002 1.12 1.84 8.68 10.61

March 2002 1.06 1.74 8.45 9.95

April 2002 1.01 1.61 8.53 9.51

May 2002 1.03 1.55 8.39 9.11

June 2002 1.04 1.53 8.57 9.09

July 2002 1.04 1.47 8.60 8.94

August 2002 1.07 1.45 8.70 9.04

September 2002 1.11 1.45 8.90 9.31

October 2002 1.10 1.40 8.94 9.21

November 2002 1.14 1.40 9.03 9.23

December 2002 1.17 1.37 8.91 9.29

January 2003 1.15 1.21 8.33 9.21

February 2003 1.16 1.19 8.25 8.99

March 2003 1.10 1.13 8.18 8.70

April 2003 1.09 1.07 8.03 8.51

May 2003 1.07 1.01 7.89 8.42

June 2003 1.07 0.99 7.46 8.21

July 2003 1.09 0.96 7.10 7.76

August 2003 1.11 0.94 6.98 7.77

September 2003 1.12 0.93 6.85 7.69

October 2003 1.07 0.85 6.68 7.58

November 2003 1.10 0.87 6.71 7.60

PeriodPrime and



adjustable-rate

Subprime,fixed-rate


December 2003 1.09 0.83 6.61 7.42

January 2004 1.11 0.82 6.76 7.31

February 2004 1.09 0.79 6.49 6.97

March 2004 1.03 0.73 6.28 6.74

April 2004 1.06 0.70 5.90 6.26

May 2004 1.07 0.68 5.83 6.23

June 2004 1.06 0.66 5.75 6.18

July 2004 1.07 0.65 5.76 6.08

August 2004 1.06 0.64 5.59 6.05

September 2004 1.08 0.64 5.61 6.03

October 2004 1.10 0.63 5.62 6.10

November 2004 1.12 0.64 5.80 6.18

December 2004 1.11 0.63 5.76 6.13

January 2005 1.12 0.63 5.85 6.28

February 2005 1.08 0.62 5.70 6.12

March 2005 1.00 0.57 5.45 5.81

April 2005 0.96 0.55 5.29 5.61

May 2005 0.95 0.55 5.32 5.64

June 2005 0.95 0.55 5.26 5.67

July 2005 0.94 0.58 5.31 5.83

August 2005 0.98 0.60 5.30 5.96

September 2005 0.99 0.61 5.34 6.19

October 2005 1.02 0.62 5.48 6.59

November 2005 1.14 0.70 5.79 7.12

December 2005 1.16 0.72 5.89 7.40

January 2006 1.15 0.73 5.90 7.72

February 2006 1.09 0.72 5.78 7.80

March 2006 0.99 0.66 5.43 7.45

April 2006 0.96 0.66 5.36 7.60

May 2006 0.93 0.65 5.19 7.72

June 2006 0.92 0.66 5.17 8.02

July 2006 0.92 0.68 5.17 8.48

August 2006 0.92 0.70 5.18 8.79

September 2006 0.91 0.73 5.26 9.28

October 2006 0.91 0.77 5.27 9.78

PeriodPrime and



adjustable-rate

Subprime,fixed-rate


November 2006 0.92 0.82 5.32 10.31

December 2006 0.87 0.83 5.41 10.87

January 2007 0.87 0.85 5.32 11.11

February 2007 0.86 0.89 5.31 11.31

March 2007 0.81 0.89 5.12 11.31

April 2007 0.80 0.94 5.15 11.76

Source: First American LoanPerformance.

Middle-right panelSerious Delinquencies in First Six Months

Adjustable-rate loansPercent of loans

PeriodPrime andnear-prime

Subprime

September 2003 0.05 1.04

October 2003 0.05 1.00

November 2003 0.05 1.00

December 2003 0.05 0.92

January 2004 0.05 0.92

February 2004 0.06 0.78

March 2004 0.05 0.84

April 2004 0.06 0.77

May 2004 0.06 0.79

June 2004 0.06 0.86

July 2004 0.07 0.91

August 2004 0.07 0.96

September 2004 0.07 0.95

October 2004 0.08 1.06

November 2004 0.09 1.22

December 2004 0.10 1.29

January 2005 0.10 1.38

February 2005 0.08 1.11

March 2005 0.09 1.09

April 2005 0.09 0.97

May 2005 0.09 0.99

June 2005 0.08 1.13

July 2005 0.09 1.24

Period Prime and near-prime Subprime

August 2005 0.09 1.29

September 2005 0.09 1.38

October 2005 0.08 1.56

November 2005 0.13 1.91

December 2005 0.14 2.17

January 2006 0.16 2.17

February 2006 0.14 1.96

March 2006 0.13 1.89

April 2006 0.13 1.94

May 2006 0.13 1.94

June 2006 0.14 2.17

July 2006 0.17 2.36

August 2006 0.19 2.52

September 2006 0.22 2.78

October 2006 0.26 3.10

November 2006 0.32 3.54

December 2006 0.37 3.74

January 2007 0.37 3.94

February 2007 0.40 3.68

March 2007 0.44 3.98

April 2007 0.48 4.29


Bottom-left panelNumber of Foreclosure Starts

Thousands, annual rate

Period Subprime Prime Other (FHA/VA) Sum

2003 192.97 319.39 363.15 875.51

2004 361.86 307.48 258.48 927.82

2005 401.66 292.02 187.93 881.61

2006:H1 457.26 272.80 160.48 890.54

2006:H2 621.80 361.41 158.18 1141.39

2007:Q1 696.75 439.30 153.79 1289.84

Source: Staff estimates based on data from the Mortgage Bankers Association.

Bottom-right panelQ1 Foreclosure Starts and Predictions

High in OH, MI and IN, but little changed

Increased CA, FL, NV and AZ, and by more than in total U.S.Model foreclosure starts on state house price growth, unemployment, subprime share, interestrates, state fixed effects, and other variablesPredicts 1.4 million in 2007 and a rise to 1.5 million in 2008 assuming national home pricesare flat

Exhibit 9Subprime Market Risks

Top-left panelDistribution of First Rate Reset of Subprime ARMs Outstanding as of March 2007

Period Percent

2006 and earlier 17.69

2007:H1 18.67

2007:H2 24.53

2008:H1 20.38

2008:H2 13.99

2009 and later 4.75

Note: Subprime 2/28 and 3/27 loans that are securitized and outstanding in March 2007.


Top-right panelCharacteristics of Interest Rate Resets

Snapshot of subprime adjustable-rate mortgages:Initial rate: 7.35 percentFully indexed rate = LIBOR + marginMost have caps on increase

Middle-left panelContract Interest Rates on Subprime Adjustable Rate Mortgages Around Reset Dates

Percent

Month Relative to First Reset Contract rate Data Fully-indexed rate

-2 7.35 7.40 ND

-1 7.35 7.35 ND

0 First reset, from 7.35 to 9.75 7.52 11.40

1 9.75 9.76 11.40

2 9.75 9.81 11.40

3 9.75 9.72 11.40

4 9.75 9.73 11.40

5 9.75 9.82 11.40

Month Relative to First Reset Contract rate Data Fully-indexed rate

6 Second reset, from 9.75 to 10.75 9.94 11.40

7 10.75 10.79 11.40

8 10.75 10.81 11.40

9 10.75 10.75 11.40

10 10.75 10.66 11.40

11 10.75 10.64 11.40

Note: Subprime 2/28 and 3/27 loans that are securitized and outstanding in March 2007.

Fully-indexed rate is estimated from chart.


Middle-right panelMortgages With Resets

Many borrowers refinance before reset dates25 percent of mortgages had a first reset12 percent had a second reset

Bottom-left panelSpreads on New Subprime RMBS Issues

Percent

Period BBB- A AAA

August 11, 2006 1.90 0.41 0.15

August 18, 2006 1.90 0.41 0.15

August 25, 2006 1.90 0.42 0.15

September 1, 2006 1.90 0.42 0.15

September 8, 2006 1.95 0.42 0.15

September 15, 2006 2.00 0.42 0.16

September 22, 2006 2.00 0.41 0.16

September 29, 2006 2.05 0.41 0.17

October 6, 2006 2.05 0.40 0.16

October 13, 2006 2.05 0.41 0.16

October 20, 2006 2.15 0.42 0.16

October 27, 2006 2.15 0.42 0.16

November 3, 2006 2.15 0.41 0.16

November 10, 2006 2.15 0.41 0.15

November 17, 2006 2.45 0.40 0.15

November 24, 2006 2.50 0.40 0.16

December 1, 2006 2.57 0.40 0.16

December 8, 2006 2.50 0.39 0.16

Period BBB- A AAA

December 15, 2006 2.75 0.41 0.16

December 22, 2006 2.85 0.41 0.16

December 29, 2006 2.85 0.41 0.16

January 5, 2007 2.75 0.41 0.16

January 12, 2007 2.75 0.40 0.16

January 19, 2007 2.50 0.40 0.15

January 26, 2007 2.45 0.37 0.14

February 2, 2007 2.50 0.37 0.14

February 9, 2007 3.20 0.42 0.15

February 16, 2007 3.30 0.43 0.15

February 23, 2007 3.75 0.45 0.16

March 2, 2007 6.00 0.90 0.21

March 9, 2007 7.00 1.10 0.25

March 16, 2007 7.50 1.30 0.23

March 23, 2007 7.50 1.25 0.22

March 30, 2007 7.00 1.35 0.25

April 6, 2007 9.00 1.40 0.25

April 13, 2007 9.00 1.50 0.25

April 20, 2007 6.50 1.25 0.25

April 27, 2007 7.00 1.00 0.24

May 4, 2007 6.80 0.90 0.23

May 11, 2007 6.50 0.70 0.21

May 18, 2007 5.00 0.60 0.21

May 25, 2007 3.75 0.53 0.20

June 1, 2007 4.10 0.58 0.21

June 8, 2007 4.50 0.50 0.21

June 15, 2007 4.50 0.50 0.22

June 22, 2007 5.50 0.60 0.24

Note: Measured relative to LIBOR.

Source: Trader estimates provided by Merrill Lynch.

Bottom-right panelSubprime Originations


Period Home purchase Refinancing Sum

2003 107 203 310

2004 206 324 530

Period Home purchase Refinancing Sum

2005:H1 242 304 546

2005:H2 342 362 704

2006:H1 294 316 610

2006:H2 256 334 590

2007:Q1 176 204 380

2007:Q2 136 174 310

e - Estimate based on securitizations through June 22. Return to table

Source: Inside Mortgage Finance for originations and LoanPerformance for purchase shares.

Exhibit 10Foreign Growth and Domestic Demand

Top panelReal GDP

AnnualPercent change, Q4/Q4

Period Total Foreign* Total Foreign Forecast United States United States Forecast

1985 4.07 ND 4.17 ND

1986 2.55 ND 2.84 ND

1987 5.73 ND 4.48 ND

1988 4.56 ND 3.66 ND

1989 3.70 ND 2.66 ND

1990 2.93 ND 0.65 ND

1991 3.27 ND 1.09 ND

1992 2.20 ND 4.15 ND

1993 3.03 ND 2.51 ND

1994 5.01 ND 4.11 ND

1995 2.35 ND 2.02 ND

1996 4.07 ND 4.42 ND

1997 4.09 ND 4.34 ND

1998 1.54 ND 4.51 ND

1999 5.10 ND 4.70 ND

2000 4.22 ND 2.24 ND

2001 0.35 ND 0.23 ND

2002 3.07 ND 1.87 ND

2003 3.01 ND 3.68 ND

2004 3.82 ND 3.40 ND

e

Period Total Foreign* Total Foreign Forecast United States United States Forecast

2005 3.83 ND 3.15 ND

2006 3.86 ND 3.13 ND

2007 ND 3.64 ND 2.18

2008 ND 3.49 ND 2.52

* Weighted by shares of U.S. merchandise exports. Return to table

Note: Horizontal line marks 3.5 percent.

Middle-left panelForeign Final Domestic Demand*

Contributions to Q4/Q4 GDPgrowth

Period Percentage points

2001 0.73

2002 2.25

2003 2.63

2004 3.60

2005 3.96

2006 4.01

* Weighted by shares of U.S. merchandise exports. Return to text

Middle-right panelForeign Fixed Investment Spending*

Quarterly

Period Percent of nominal GDP

2001:Q1 20.82

2001:Q2 20.60

2001:Q3 20.50

2001:Q4 20.11

2002:Q1 20.11

2002:Q2 20.09

2002:Q3 20.01

2002:Q4 20.01

2003:Q1 19.87

2003:Q2 19.79

2003:Q3 19.96

2003:Q4 20.18

2004:Q1 20.20

2004:Q2 20.44

Period Percent of nominal GDP

2004:Q3 20.48

2004:Q4 20.51

2005:Q1 20.60

2005:Q2 20.76

2005:Q3 20.72

2005:Q4 20.71

2006:Q1 21.10

2006:Q2 21.24

2006:Q3 21.56

2006:Q4 21.78

* Weighted by shares of U.S. merchandise exports. Return to text

Bottom-left panelUnemployment Rates

MonthlyPercent

Period Japan Euro area Canada

April 2001 4.8 7.7 7.1

May 2001 4.9 7.7 7.0

June 2001 5.0 7.7 7.1

July 2001 5.0 7.8 7.1

August 2001 5.1 7.8 7.2

September 2001 5.3 7.8 7.2

October 2001 5.3 7.9 7.4

November 2001 5.4 7.9 7.6

December 2001 5.4 7.9 8.0

January 2002 5.2 7.9 8.0

February 2002 5.3 8.0 7.9

March 2002 5.3 8.0 7.8

April 2002 5.3 8.1 7.7

May 2002 5.4 8.1 7.8

June 2002 5.5 8.1 7.5

July 2002 5.4 8.2 7.6

August 2002 5.5 8.3 7.4

September 2002 5.4 8.3 7.5

October 2002 5.4 8.3 7.5

November 2002 5.2 8.4 7.5

December 2002 5.4 8.4 7.5


January 2003 5.4 8.5 7.4

February 2003 5.2 8.6 7.4

March 2003 5.4 8.6 7.3

April 2003 5.5 8.6 7.6

May 2003 5.4 8.7 7.9

June 2003 5.4 8.7 7.7

July 2003 5.2 8.7 7.7

August 2003 5.1 8.7 7.8

September 2003 5.2 8.7 7.9

October 2003 5.1 8.7 7.6

November 2003 5.1 8.8 7.5

December 2003 4.9 8.8 7.3

January 2004 4.9 8.8 7.3

February 2004 5.0 8.8 7.3

March 2004 4.8 8.8 7.4

April 2004 4.8 8.8 7.2

May 2004 4.7 8.9 7.2

June 2004 4.7 8.9 7.3

July 2004 4.9 8.8 7.1

August 2004 4.8 8.8 7.1

September 2004 4.6 8.8 7.0

October 2004 4.6 8.8 7.1

November 2004 4.5 8.7 7.2

December 2004 4.5 8.7 7.1

January 2005 4.5 8.7 6.9

February 2005 4.6 8.8 7.0

March 2005 4.5 8.8 6.9

April 2005 4.5 8.7 6.8

May 2005 4.5 8.7 6.9

June 2005 4.3 8.6 6.9

July 2005 4.4 8.5 6.7

August 2005 4.3 8.4 6.7

September 2005 4.3 8.4 6.7

October 2005 4.4 8.4 6.7

November 2005 4.5 8.4 6.3

December 2005 4.4 8.4 6.5

January 2006 4.4 8.3 6.6


February 2006 4.1 8.2 6.3

March 2006 4.2 8.2 6.3

April 2006 4.1 8.0 6.4

May 2006 4.1 7.9 6.1

June 2006 4.2 7.9 6.1

July 2006 4.1 7.8 6.4

August 2006 4.1 7.8 6.4

September 2006 4.2 7.7 6.4

October 2006 4.1 7.7 6.1

November 2006 4.0 7.6 6.2

December 2006 4.0 7.5 6.1

January 2007 4.0 7.4 6.2

February 2007 4.0 7.3 6.1

March 2007 4.0 7.2 6.1

April 2007 3.8 7.1 6.1

May 2007 ND ND 6.1

Bottom-right panelPrimary Commodity Prices

Monthly

PeriodWTI Oil

(Dollars perbarrel)

WTI OilForecast

Non-fuel*(Index, January

2001 = 100)

Non-fuelForecast

Food**(Index, January

2001 = 100)

FoodForecast

April 2001 27.41 ND 98.85 ND 97.88 ND

May 2001 28.64 ND 100.32 ND 101.06 ND

June 2001 27.60 ND 98.48 ND 101.02 ND

July 2001 26.45 ND 96.75 ND 104.99 ND

August 2001 27.47 ND 94.42 ND 104.03 ND

September 2001 25.88 ND 91.48 ND 100.24 ND

October 2001 22.21 ND 87.82 ND 95.13 ND

November 2001 19.67 ND 89.69 ND 95.71 ND

December 2001 19.33 ND 89.39 ND 95.78 ND

January 2002 19.67 ND 90.66 ND 96.62 ND

February 2002 20.74 ND 92.09 ND 95.91 ND

March 2002 24.42 ND 94.34 ND 97.79 ND

April 2002 26.27 ND 94.27 ND 96.88 ND

May 2002 27.02 ND 94.49 ND 99.26 ND

June 2002 25.52 ND 96.83 ND 101.73 ND

PeriodWTI Oil

(Dollars perbarrel)

WTI OilForecast


2001 = 100)

Non-fuelForecast


2001 = 100)

FoodForecast

July 2002 26.94 ND 98.67 ND 106.23 ND

August 2002 28.38 ND 97.96 ND 106.85 ND


October 2002 28.85 ND 101.12 ND 109.77 ND

November 2002 26.27 ND 100.94 ND 107.23 ND

December 2002 29.42 ND 100.42 ND 107.87 ND

January 2003 32.94 ND 102.21 ND 107.97 ND

February 2003 35.87 ND 102.89 ND 107.06 ND

March 2003 33.55 ND 100.95 ND 106.41 ND

April 2003 28.25 ND 100.31 ND 105.72 ND

May 2003 28.15 ND 100.47 ND 107.36 ND

June 2003 30.73 ND 100.48 ND 105.22 ND

July 2003 30.76 ND 100.58 ND 102.21 ND

August 2003 31.59 ND 102.20 ND 104.09 ND


October 2003 30.33 ND 108.15 ND 113.37 ND

November 2003 31.06 ND 110.48 ND 115.97 ND

December 2003 32.15 ND 112.75 ND 116.11 ND

January 2004 34.24 ND 118.61 ND 120.62 ND

February 2004 34.74 ND 123.14 ND 124.11 ND

March 2004 36.76 ND 125.57 ND 131.23 ND

April 2004 36.69 ND 125.24 ND 133.32 ND

May 2004 40.29 ND 123.89 ND 133.48 ND

June 2004 38.04 ND 124.50 ND 129.45 ND

July 2004 40.80 ND 124.95 ND 126.06 ND

August 2004 44.94 ND 122.90 ND 120.42 ND


October 2004 53.13 ND 123.81 ND 115.30 ND

November 2004 48.46 ND 124.33 ND 115.70 ND

December 2004 43.33 ND 124.38 ND 116.96 ND

January 2005 46.84 ND 131.26 ND 117.83 ND

February 2005 47.97 ND 134.81 ND 122.46 ND

March 2005 54.22 ND 140.32 ND 128.13 ND

April 2005 53.04 ND 136.92 ND 124.26 ND

May 2005 49.83 ND 136.03 ND 124.67 ND

PeriodWTI Oil

(Dollars perbarrel)

WTI OilForecast


2001 = 100)

Non-fuelForecast


2001 = 100)

FoodForecast

June 2005 56.40 ND 137.26 ND 124.19 ND

July 2005 58.70 ND 136.57 ND 124.05 ND

August 2005 64.97 ND 138.97 ND 122.48 ND


October 2005 62.37 ND 140.93 ND 123.87 ND

November 2005 58.30 ND 142.59 ND 120.73 ND

December 2005 59.43 ND 148.53 ND 124.36 ND

January 2006 65.51 ND 156.32 ND 126.37 ND

February 2006 61.63 ND 161.52 ND 130.46 ND

March 2006 62.88 ND 162.63 ND 130.80 ND

April 2006 69.69 ND 174.56 ND 132.24 ND

May 2006 70.94 ND 191.49 ND 140.08 ND

June 2006 70.96 ND 183.32 ND 139.26 ND

July 2006 74.41 ND 188.80 ND 138.79 ND

August 2006 73.05 ND 189.71 ND 136.05 ND


October 2006 58.90 ND 194.10 ND 137.23 ND

November 2006 59.15 ND 195.70 ND 140.82 ND

December 2006 62.06 ND 198.77 ND 141.04 ND

January 2007 54.23 ND 196.29 ND 141.17 ND

February 2007 59.26 ND 200.66 ND 145.94 ND

March 2007 60.56 ND 207.12 ND 145.55 ND

April 2007 63.96 ND 220.05 ND 144.22 ND

May 2007 63.46 ND 223.81 ND 146.52 ND

June 2007 ND 67.48 ND 226.16 ND 153.16

July 2007 ND 69.09 ND 227.00 ND 156.33

August 2007 ND 69.62 ND 227.73 ND 157.42

September 2007 ND 70.32 ND 228.49 ND 158.63

October 2007 ND 70.84 ND 228.37 ND 159.33

November 2007 ND 71.26 ND 228.18 ND 159.91

December 2007 ND 71.61 ND 228.24 ND 160.33

January 2008 ND 71.94 ND 228.33 ND 160.80

February 2008 ND 72.22 ND 228.19 ND 161.17

March 2008 ND 72.47 ND 228.04 ND 161.52

April 2008 ND 72.66 ND 227.64 ND 161.57

PeriodWTI Oil

(Dollars perbarrel)

WTI OilForecast


2001 = 100)

Non-fuelForecast


2001 = 100)

FoodForecast

May 2008 ND 72.82 ND 227.21 ND 161.55

June 2008 ND 72.97 ND 226.64 ND 161.04

July 2008 ND 73.07 ND 226.05 ND 160.52

August 2008 ND 73.14 ND 225.53 ND 160.23

September 2008 ND 73.20 ND 225.00 ND 159.93

October 2008 ND 73.25 ND 224.56 ND 159.89

November 2008 ND 73.29 ND 224.12 ND 159.83

December 2008 ND 73.32 ND 223.73 ND 159.94

* IMF index, weighted by shares of U.S. merchandise imports. Return to table

** IMF index, weighted by global export shares. Return to table

Exhibit 11Foreign Consumer Prices and Primary Commodity Prices

Top panelsUnleaded Gasoline and Imported Crude Oil Prices*

Germany

Period Imported oil priceGasoline price ex.

taxPrice at pump

September 2004 100.00 167.24 551.04

October 2004 109.43 176.63 561.84

November 2004 92.60 160.19 542.58

December 2004 81.71 139.05 518.15

January 2005 92.34 136.23 514.86

February 2005 97.23 144.22 524.26

March 2005 111.33 153.14 534.59

April 2005 112.32 174.28 559.02

May 2005 108.10 175.22 559.96

June 2005 126.53 182.74 568.89

July 2005 137.67 202.00 591.43

August 2005 146.36 214.21 605.53

September 2005 147.26 240.05 635.59

October 2005 141.55 231.59 625.73

November 2005 135.80 193.54 581.57

December 2005 138.81 188.85 575.93

January 2006 148.57 197.30 585.80

Period Imported oil price Gasoline price ex. tax Price at pump

February 2006 146.26 205.76 595.66

March 2006 147.03 197.77 586.27

April 2006 160.95 230.65 624.32

May 2006 155.69 240.99 636.53

June 2006 154.22 231.59 625.73

July 2006 164.95 249.92 646.87

August 2006 165.34 249.45 646.40

September 2006 142.72 201.06 590.03

October 2006 132.97 182.74 568.89

November 2006 131.83 174.75 559.49

December 2006 134.88 180.39 566.07

January 2007 122.03 178.04 577.81

February 2007 127.23 177.57 577.34

March 2007 134.69 195.89 599.42

Japan


taxPrice at pump

September 2004 100.00 227.60 436.35

October 2004 96.35 227.60 436.35

November 2004 96.30 231.09 439.84

December 2004 89.08 227.60 436.35

January 2005 88.81 220.62 429.01

February 2005 95.58 217.13 425.17

March 2005 102.40 220.62 429.01

April 2005 118.67 238.07 447.17

May 2005 118.76 245.05 454.50

June 2005 120.61 241.56 451.01

July 2005 134.28 227.60 436.35

August 2005 138.36 241.21 450.31

September 2005 146.94 247.84 457.29

October 2005 150.32 247.84 457.29

November 2005 147.07 244.35 453.80

December 2005 142.38 241.21 450.31

January 2006 146.56 237.72 446.82

February 2006 159.33 244.35 453.80

March 2006 157.47 247.84 457.29

April 2006 160.35 247.84 457.29


May 2006 165.67 264.25 474.74

June 2006 171.32 264.25 474.74

July 2006 175.11 267.74 478.23

August 2006 184.27 290.78 502.67

September 2006 181.61 290.78 502.67

October 2006 162.22 281.01 492.20

November 2006 151.75 267.74 478.23

December 2006 152.14 257.62 467.76

January 2007 157.68 254.48 464.27

February 2007 143.77 241.21 450.31

March 2007 149.97 241.21 450.31

Canada


taxPrice at pump

September 2004 100.00 158.05 249.59

October 2004 111.18 165.20 257.05

November 2004 104.92 154.17 245.42

December 2004 93.83 139.26 229.32

January 2005 93.45 145.22 235.88

February 2005 100.39 155.06 246.31

March 2005 111.81 166.69 258.84

April 2005 116.86 180.41 273.45

May 2005 115.04 170.87 263.31

June 2005 116.91 179.22 272.26

July 2005 124.30 185.48 278.82

August 2005 134.83 204.57 299.39

September 2005 136.87 232.60 329.21

October 2005 132.13 205.76 300.59

November 2005 125.17 173.85 266.29

December 2005 119.97 175.34 268.08

January 2006 127.80 189.36 282.99

February 2006 131.02 172.66 265.10

March 2006 128.74 185.18 278.52

April 2006 141.05 220.37 316.09

May 2006 145.80 218.28 314.01

June 2006 140.17 220.37 316.09

July 2006 148.29 235.28 328.92


August 2006 151.45 232.30 325.93

September 2006 136.30 179.81 270.17

October 2006 125.16 171.47 261.52

November 2006 124.19 172.66 262.71

December 2006 133.37 182.50 273.15

January 2007 123.31 172.06 262.12

February 2007 122.76 171.17 261.22

March 2007 130.11 210.83 303.27

United States


taxPrice at pump

September 2004 100.00 155.76 196.79

October 2004 111.30 169.30 210.33

November 2004 102.46 168.11 209.14

December 2004 89.38 154.96 195.99

January 2005 93.18 149.78 190.81

February 2005 99.17 159.34 200.37

March 2005 112.18 171.69 212.72

April 2005 114.98 194.80 236.23

May 2005 109.72 187.63 229.05

June 2005 120.12 184.04 225.47

July 2005 131.37 199.58 241.01

August 2005 142.07 217.10 258.53

September 2005 148.66 257.74 299.17

October 2005 140.32 250.57 292.00

November 2005 129.92 204.76 246.18

December 2005 127.99 187.63 229.05

January 2006 136.56 200.77 242.60

February 2006 135.33 200.77 242.60

March 2006 136.88 206.75 248.57

April 2006 152.29 246.98 288.81

May 2006 161.14 265.31 307.13

June 2006 161.04 261.72 303.55

July 2006 168.40 271.28 313.11

August 2006 167.68 273.27 315.10

September 2006 150.19 227.06 268.89

October 2006 134.95 195.19 237.02


November 2006 132.07 192.01 233.84

December 2006 136.36 201.57 243.40

January 2007 129.04 195.99 237.82

February 2007 131.60 192.41 234.23

March 2007 140.37 221.88 263.71

* Index of local currency prices, imported crude oil price = 100 in September 2004, ratio scale. Return to text

Middle-left panelPass-Through of Crude Oil Prices to Retail Gasoline Prices

September 2004 to March 2007

Pass-Through*

Germany .25

Japan .06

Canada .71

United States .84

* Ratio of percent change in local-currency price of regular unleaded gasoline to percent change in local-currency price ofimported crude oil. Return to table

Middle-right panelConsumer Energy Prices

Ratio scale, January 2003 = 100

Period Germany Japan CanadaUnitedStates

January 2003 100.00 100.00 100.00 100.00

February 2003 102.08 100.25 104.34 106.37

March 2003 102.80 101.03 106.48 111.21

April 2003 99.55 101.89 97.86 105.38

May 2003 97.74 101.73 95.73 102.15

June 2003 98.28 101.28 97.58 102.07

July 2003 98.64 101.19 98.01 102.61

August 2003 99.73 101.15 102.21 105.84

September 2003 99.10 101.22 102.14 109.14

October 2003 99.37 100.92 97.58 106.07

November 2003 98.92 100.82 96.44 103.23

December 2003 98.83 100.74 97.01 104.22

January 2004 99.82 100.47 98.93 107.60

February 2004 99.55 100.43 101.07 110.52

Period Germany Japan Canada United States

March 2004 100.63 100.53 102.07 111.67

April 2004 102.17 100.97 104.13 111.21

May 2004 104.88 101.14 111.25 116.97

June 2004 103.16 102.68 110.26 119.28

July 2004 104.34 103.00 108.48 117.51

August 2004 105.96 103.08 108.55 117.13

September 2004 105.33 104.77 108.05 116.59

October 2004 108.76 104.68 110.33 122.20

November 2004 105.87 105.21 108.05 122.96

December 2004 103.43 105.08 104.91 121.35

January 2005 105.15 104.08 106.20 118.89

February 2005 106.14 103.76 108.48 122.04

March 2005 109.03 103.87 111.75 125.50

April 2005 111.38 105.46 115.31 129.95

May 2005 111.11 106.01 113.11 128.57

June 2005 113.64 105.62 114.60 128.03

July 2005 116.53 106.16 118.45 134.26

August 2005 118.25 107.30 122.08 141.09

September 2005 122.04 108.10 131.20 157.76

October 2005 122.49 109.11 125.21 158.37

November 2005 118.25 109.11 117.59 145.24

December 2005 118.34 108.84 115.60 141.78

January 2006 121.41 110.33 122.44 148.23

February 2006 121.68 111.17 117.31 146.62

March 2006 121.95 111.45 120.01 147.24

April 2006 125.75 111.13 128.28 153.00

May 2006 126.29 112.78 129.06 158.60

June 2006 127.10 112.81 127.78 157.76

July 2006 128.36 112.92 131.05 161.75

August 2006 127.64 115.19 130.77 162.37

September 2006 122.94 115.23 118.87 150.54

October 2006 122.31 114.28 114.32 140.48

November 2006 121.59 112.63 114.32 140.17

December 2006 121.59 112.02 117.38 146.01

January 2007 123.31 112.29 115.53 143.89

February 2007 124.30 110.98 117.31 145.12

March 2007 126.29 110.88 125.43 153.74

Period Germany Japan Canada United States

April 2007 127.91 111.09 128.42 157.43

May 2007 128.73 ND ND 165.95

Bottom-left panelFood Prices in Mexico

Percent change*

Period Tortillas and corn products Tomatoes Food

March 2003 8.87 30.90 8.00

April 2003 9.37 2.28 7.02

May 2003 9.73 15.37 6.48

June 2003 10.03 3.00 5.31

July 2003 10.12 33.17 4.59

August 2003 10.32 46.25 4.12

September 2003 10.60 53.58 5.18

October 2003 10.18 42.47 5.57

November 2003 11.07 13.32 5.30

December 2003 12.39 0.30 5.02

January 2004 12.27 -10.86 6.52

February 2004 9.80 21.67 7.72

March 2004 8.80 -15.66 6.10

April 2004 8.27 16.63 5.72

May 2004 8.04 8.04 5.61

June 2004 7.90 -17.32 5.20

July 2004 7.88 -33.33 5.47

August 2004 7.86 -10.75 7.51

September 2004 8.09 12.44 8.59

October 2004 8.04 61.30 9.99

November 2004 6.96 83.21 10.04

December 2004 7.15 23.24 8.46

January 2005 7.15 -19.72 5.52

February 2005 7.74 -6.43 5.29

March 2005 7.84 24.61 6.23

April 2005 7.42 57.30 8.30

May 2005 7.20 74.79 9.30

June 2005 6.70 61.22 8.01

July 2005 7.01 56.31 8.53

August 2005 6.81 -5.98 6.43

Period Tortillas and corn products Tomatoes Food

September 2005 6.27 -26.65 4.53

October 2005 6.36 -51.40 1.96

November 2005 6.18 -60.26 0.33

December 2005 5.22 -23.18 1.92

January 2006 4.90 106.36 5.01

February 2006 5.75 112.74 4.53

March 2006 6.37 12.02 2.53

April 2006 6.47 -26.86 0.79

May 2006 6.54 -33.46 0.32

June 2006 6.73 -27.23 1.20

July 2006 6.68 -35.35 0.54

August 2006 7.24 6.85 2.27

September 2006 10.93 87.55 5.56

October 2006 11.49 136.18 7.15

November 2006 11.49 81.89 6.79

December 2006 13.64 10.18 6.76

January 2007 18.89 -26.77 6.17

February 2007 15.46 -39.38 6.11

March 2007 14.30 -37.02 7.22

April 2007 13.89 -15.82 7.80

May 2007 13.41 -12.98 6.39

* Twelve-month change. Return to table

Bottom-right panelFood Prices in China

Percent change*

Period Meat and poultry Food

March 2003 -1.4 3.2

April 2003 -0.6 3.2

May 2003 -0.4 1.9

June 2003 0.5 0.4

July 2003 2.2 1.0

August 2003 3.5 2.2


October 2003 8.1 5.1

November 2003 12.4 8.1

December 2003 12.1 8.6


January 2004 14.6 8.0

February 2004 10.9 5.6

March 2004 14.6 7.9

April 2004 18.2 10.2

May 2004 19.7 11.8

June 2004 22.1 14.0

July 2004 22.9 14.6

August 2004 23.5 13.9

September 2004 22.4 13.0

October 2004 18.9 10.0

November 2004 12.6 5.9

December 2004 11.5 4.9

January 2005 9.3 4.0

February 2005 14.9 8.8

March 2005 12.2 5.6

April 2005 8.6 3.1

May 2005 6.9 2.8

June 2005 4.0 2.1

July 2005 0.9 2.3

August 2005 -2.1 0.9

September 2005 -3.7 0.3

October 2005 -4.9 1.3

November 2005 -6.3 1.6

December 2005 -6.3 2.2

January 2006 -4.6 3.6

February 2006 -6.6 1.2

March 2006 -7.8 0.8

April 2006 -8.7 1.8

May 2006 -9.3 1.9

June 2006 -9.0 2.1

July 2006 -7.1 0.6

August 2006 -3.1 1.4

September 2006 -0.5 2.4

October 2006 2.6 2.2

November 2006 7.6 3.7

December 2006 13.4 6.3

January 2007 13.5 5.0


February 2007 15.4 6.0

March 2007 16.5 7.7

April 2007 17.6 7.1

May 2007 26.5 8.3

* Twelve-month change. Return to table

Exhibit 12Foreign Inflation: Core, Expectations, and Outlook

Top and middle panelsCore Consumer Prices

Top-left panelEmerging Market Economies

Twelve-month percent change

Period Brazil China* Korea Mexico

April 2001 3.58 1.17 3.61 6.54

May 2001 3.76 1.13 4.12 6.49

June 2001 3.73 1.07 4.12 6.45

July 2001 4.09 1.00 3.80 6.17

August 2001 4.27 0.93 3.69 5.98

September 2001 4.27 -0.20 3.48 5.86

October 2001 4.55 -0.07 3.58 5.67

November 2001 5.04 -0.03 3.67 5.28

December 2001 5.64 -0.03 3.56 4.97

January 2002 5.77 -0.37 2.94 4.77

February 2002 6.03 -0.20 3.03 4.76

March 2002 6.19 -0.60 3.01 4.66

April 2002 6.30 -0.63 3.00 4.47

May 2002 6.46 -0.60 2.99 4.23

June 2002 6.33 -0.73 2.89 4.00

July 2002 6.21 -0.60 2.99 3.92

August 2002 6.09 -0.57 2.79 3.89

September 2002 6.49 -0.63 2.88 3.78

October 2002 6.75 -0.63 2.97 3.77

November 2002 7.35 -0.67 3.07 3.70

December 2002 8.30 -0.57 3.05 3.70


January 2003 9.26 -0.40 3.14 3.79

February 2003 9.44 -0.40 3.04 3.62

March 2003 10.19 -0.17 3.39 3.61

April 2003 10.53 -0.07 3.20 3.58

May 2003 10.56 0.07 3.09 3.66

June 2003 10.97 0.17 3.28 3.62

July 2003 10.83 0.17 3.09 3.56

August 2003 10.80 0.17 3.18 3.50

September 2003 10.54 0.03 3.08 3.46

October 2003 10.14 0.10 2.79 3.42

November 2003 9.27 0.30 2.70 3.50

December 2003 8.17 0.33 2.78 3.61

January 2004 7.37 0.53 2.77 3.61

February 2004 7.38 0.23 2.67 3.61

March 2004 7.09 0.37 2.73 3.58

April 2004 6.99 0.40 2.73 3.56

May 2004 7.14 0.47 2.73 3.50

June 2004 7.15 0.33 2.72 3.65

July 2004 7.25 0.43 3.09 3.64

August 2004 7.45 0.67 3.17 3.64

September 2004 7.49 0.87 3.17 3.73

October 2004 7.68 0.97 3.35 3.80

November 2004 7.89 0.83 3.08 3.77

December 2004 7.93 0.77 2.88 3.76

January 2005 7.85 0.57 3.25 3.77

February 2005 7.77 0.97 3.37 3.74

March 2005 7.30 0.83 2.78 3.64

April 2005 7.29 0.77 2.69 3.48

May 2005 7.16 0.87 2.61 3.44

June 2005 6.97 0.90 2.33 3.39

July 2005 6.88 1.03 2.06 3.41

August 2005 6.56 1.00 1.89 3.27

September 2005 6.45 0.80 1.81 3.18

October 2005 6.26 0.77 1.72 3.13

November 2005 5.95 0.77 1.90 3.08

December 2005 5.55 0.87 1.84 3.10

January 2006 5.88 0.70 1.31 2.98


February 2006 5.65 0.50 1.31 2.91

March 2006 5.78 0.53 1.40 3.05

April 2006 5.26 0.60 1.50 3.21

May 2006 4.63 0.77 1.80 3.15

June 2006 4.09 0.80 1.90 3.21

July 2006 3.85 0.80 2.10 3.26

August 2006 3.72 0.83 2.10 3.33

September 2006 3.64 0.70 2.00 3.44

October 2006 3.57 0.67 2.00 3.43

November 2006 3.52 0.67 2.10 3.49

December 2006 3.56 0.70 2.09 3.60

January 2007 3.09 0.53 2.09 3.89

February 2007 2.90 0.70 2.28 3.96

March 2007 2.58 0.73 2.37 3.84

April 2007 2.66 0.63 2.56 3.67

May 2007 3.03 0.63 2.16 3.74

* Staff estimate. Return to table

Top-right panelAdvanced Foreign Economies

Twelve-month percent change

Period Canada Euro area Japan United Kingdom

April 2001 2.31 1.80 -0.78 1.01

May 2001 2.31 1.98 -0.97 1.18

June 2001 2.30 2.03 -0.88 1.39

July 2001 2.51 2.01 -0.88 1.54

August 2001 2.40 1.98 -0.78 1.76

September 2001 2.29 2.16 -0.78 1.45

October 2001 2.18 2.33 -0.68 1.24

November 2001 1.76 2.41 -0.88 1.24

December 2001 1.55 2.34 -0.98 1.45

January 2002 1.86 2.61 -0.88 1.70

February 2002 2.28 2.67 -0.78 1.58

March 2002 2.06 2.65 -0.78 1.63

April 2002 2.16 2.45 -0.98 1.39

May 2002 2.15 2.57 -0.88 1.32

June 2002 2.15 2.51 -0.88 1.30


July 2002 2.14 2.53 -0.88 1.48

August 2002 2.55 2.53 -0.98 1.24

September 2002 2.55 2.44 -0.98 1.28

October 2002 2.54 2.32 -0.98 1.56

November 2002 3.16 2.31 -0.79 1.56

December 2002 2.75 2.21 -0.69 1.64

January 2003 3.25 2.05 -0.79 1.41

February 2003 3.03 2.10 -0.69 1.55

March 2003 2.83 2.01 -0.59 1.48

April 2003 2.11 2.11 -0.40 1.54

May 2003 2.31 1.96 -0.30 1.35

June 2003 2.10 1.94 -0.40 1.11

July 2003 1.90 1.89 -0.20 1.25

August 2003 1.49 1.89 -0.10 1.27

September 2003 1.69 1.95 -0.10 1.35

October 2003 1.88 1.97 0.00 1.27

November 2003 1.68 1.95 -0.10 1.22

December 2003 2.08 1.88 0.00 1.05

January 2004 1.38 1.99 -0.10 1.28

February 2004 1.18 2.08 0.00 1.19

March 2004 1.28 2.09 -0.10 1.06

April 2004 1.77 2.09 -0.20 1.07

May 2004 1.57 2.10 -0.30 1.21

June 2004 1.76 2.13 -0.10 1.33

July 2004 1.86 2.15 -0.20 1.17

August 2004 1.57 2.18 -0.20 1.07

September 2004 1.56 2.04 -0.10 0.98

October 2004 1.46 1.96 -0.10 0.94

November 2004 1.55 1.88 -0.20 1.09

December 2004 1.65 2.06 -0.20 1.29

January 2005 1.65 1.82 -0.30 1.26

February 2005 1.75 1.63 -0.60 1.21

March 2005 1.84 1.59 -0.50 1.42

April 2005 1.74 1.40 -0.40 1.43

May 2005 1.64 1.54 -0.30 1.56

June 2005 1.54 1.40 -0.60 1.54

July 2005 1.35 1.35 -0.60 1.82


August 2005 1.83 1.33 -0.60 1.80

September 2005 1.73 1.44 -0.60 1.72

October 2005 1.63 1.48 -0.50 1.73

November 2005 1.63 1.51 -0.50 1.65

December 2005 1.53 1.40 -0.50 1.45

January 2006 1.62 1.34 -0.10 1.37

February 2006 1.62 1.36 0.00 1.49

March 2006 1.62 1.45 0.10 1.35

April 2006 1.62 1.60 -0.10 1.36

May 2006 1.90 1.46 0.00 1.20

June 2006 1.80 1.55 0.20 1.38

July 2006 2.09 1.59 0.20 1.09

August 2006 1.99 1.50 0.30 1.27

September 2006 2.27 1.52 0.20 1.60

October 2006 2.36 1.62 0.10 1.65

November 2006 2.07 1.59 0.20 1.79

December 2006 2.07 1.63 0.10 1.94

January 2007 2.16 1.79 0.00 1.80

February 2007 2.44 1.91 -0.10 1.94

March 2007 2.34 1.87 -0.30 2.22

April 2007 2.53 1.90 -0.10 2.12

May 2007 2.24 1.95 ND 2.21

Middle-left panelChange in Ten-Year Sovereign Bond Yields

(12/29/06 - 6/26/07, basis points)

NominalYield

IndexedRealYield

InflationCompensation

Canada* 54 43 11

Euro area 67 65 2

United Kingdom 73 56 17

Japan 19 6 13

United States 40 28 12

* 15-year maturities. Return to table

Middle-right panelHeadline Inflation Expectations

(Percent, year-average over year-average)

For 2007 as of: Long-run*as of Apr. 07Dec. 06 Jun. 07

Canada 1.7 2.2 2.0

Euro area 2.1 2.0 1.9

United Kingdom 2.2 2.4 1.9

Japan 0.3 0.0 1.2

United States 2.0 2.6 2.1

* Expectations for inflation in years 2013 to 2017. Return to table

Source: Consensus Economics Surveys.

Bottom panelsHeadline Consumer Prices

Bottom-left panelAdvanced Foreign Economies


Period CanadaCanadaForecast

EuroArea

EuroArea

ForecastJapan

JapanForecast

UnitedKingdom

UnitedKingdomForecast

2004:Q2 2.22 ND 2.29 ND -0.30 ND 1.45 ND

2004:Q3 1.96 ND 2.23 ND -0.13 ND 1.26 ND

2004:Q4 2.28 ND 2.29 ND 0.50 ND 1.43 ND

2005:Q1 2.08 ND 2.07 ND -0.27 ND 1.75 ND

2005:Q2 1.93 ND 2.04 ND -0.40 ND 1.96 ND

2005:Q3 2.67 ND 2.32 ND -0.60 ND 2.35 ND

2005:Q4 2.25 ND 2.33 ND -1.02 ND 2.13 ND

2006:Q1 2.51 ND 2.35 ND -0.17 ND 1.96 ND

2006:Q2 2.58 ND 2.47 ND 0.17 ND 2.25 ND

2006:Q3 1.61 ND 2.14 ND 0.60 ND 2.40 ND

2006:Q4 1.32 ND 1.77 ND 0.33 ND 2.71 ND

2007:Q1 1.88 ND 1.89 ND -0.10 ND 2.85 ND

2007:Q2 ND 1.85 ND 1.82 ND -0.08 ND 2.56

2007:Q3 ND 2.38 ND 2.00 ND -0.21 ND 2.27

2007:Q4 ND 2.86 ND 2.25 ND 0.25 ND 2.19

2008:Q1 ND 2.32 ND 2.25 ND 0.59 ND 2.08

2008:Q2 ND 2.12 ND 2.09 ND 0.59 ND 2.02

2008:Q3 ND 2.07 ND 1.95 ND 0.55 ND 2.02

2008:Q4 ND 2.05 ND 1.93 ND 0.51 ND 2.02

Bottom-right panelEmerging Market Economies


Period BrazilBrazil

ForecastChina

ChinaForecast

KoreaKorea

ForecastMexico

MexicoForecast

2004:Q2 5.46 ND 4.33 ND 3.42 ND 4.33 ND

2004:Q3 6.84 ND 5.19 ND 4.31 ND 4.78 ND

2004:Q4 7.20 ND 3.27 ND 3.38 ND 5.31 ND

2005:Q1 7.36 ND 2.71 ND 3.25 ND 4.40 ND

2005:Q2 7.74 ND 1.72 ND 3.00 ND 4.54 ND

2005:Q3 6.16 ND 1.29 ND 2.31 ND 3.97 ND

2005:Q4 6.07 ND 1.40 ND 2.47 ND 3.08 ND

2006:Q1 5.57 ND 1.23 ND 2.07 ND 3.70 ND

2006:Q2 4.32 ND 1.33 ND 2.26 ND 3.14 ND

2006:Q3 3.84 ND 1.23 ND 2.51 ND 3.54 ND

2006:Q4 3.21 ND 2.09 ND 2.13 ND 4.14 ND

2007:Q1 3.13 ND 2.77 ND 2.00 ND 4.10 ND

2007:Q2 ND 3.40 ND 3.36 ND 2.39 ND 4.08

2007:Q3 ND 4.05 ND 3.75 ND 2.46 ND 3.74

2007:Q4 ND 4.03 ND 3.39 ND 3.23 ND 3.36

2008:Q1 ND 3.61 ND 3.09 ND 3.78 ND 3.18

2008:Q2 ND 3.65 ND 2.59 ND 3.38 ND 3.51

2008:Q3 ND 3.66 ND 2.33 ND 3.13 ND 3.52

2008:Q4 ND 3.66 ND 2.35 ND 2.84 ND 3.54

Exhibit 13What Explains the Improved Outlook for External Adjustment? (Part 1)

Top-left panelCurrent Account Balance


Period Current Account Balance May 2006 Greenbook June 2007 Forecast

2002:Q1 -417.85 -440.36 ND

2002:Q2 -462.97 -477.14 ND

2002:Q3 -464.27 -480.32 ND

2002:Q4 -493.45 -502.99 ND

2003:Q1 -540.44 -546.64 ND

2003:Q2 -520.43 -515.18 ND

Period Current Account Balance May 2006 Greenbook June 2007 Forecast

2003:Q3 -522.09 -515.92 ND

2003:Q4 -505.47 -500.97 ND

2004:Q1 -559.76 -584.40 ND

2004:Q2 -634.74 -666.54 ND

2004:Q3 -632.29 -667.93 ND

2004:Q4 -733.81 -753.44 ND

2005:Q1 -729.57 -790.98 ND

2005:Q2 -732.95 -787.61 ND

2005:Q3 -693.63 -741.72 ND

2005:Q4 -863.23 -899.50 ND

2006:Q1 -802.44 -900.59 ND

2006:Q2 -822.38 -948.96 ND

2006:Q3 -869.35 -980.83 ND

2006:Q4 -751.76 -1031.87 ND

2007:Q1 -770.32 -1066.09 ND

2007:Q2 ND -1070.13 -815.41

2007:Q3 ND -1085.75 -838.42

2007:Q4 ND -1131.95 -863.22

2008:Q1 ND ND -908.45

2008:Q2 ND ND -884.02

2008:Q3 ND ND -891.47

2008:Q4 ND ND -923.56

Top-right panelTrade Balance


Period Trade Balance May 2006 Greenbook June 2007 Forecast

2002:Q1 -374.71 -372.70 ND

2002:Q2 -415.81 -413.83 ND

2002:Q3 -431.75 -430.28 ND

2002:Q4 -472.63 -467.91 ND

2003:Q1 -498.61 -499.33 ND

2003:Q2 -494.75 -491.40 ND

2003:Q3 -493.41 -490.80 ND

2003:Q4 -500.89 -497.71 ND

2004:Q1 -544.14 -555.41 ND

2004:Q2 -602.41 -608.17 ND

Period Trade Balance May 2006 Greenbook June 2007 Forecast

2004:Q3 -626.41 -629.86 ND

2004:Q4 -675.41 -676.89 ND

2005:Q1 -666.57 -688.50 ND

2005:Q2 -682.68 -690.88 ND

2005:Q3 -723.81 -725.61 ND

2005:Q4 -784.43 -789.49 ND

2006:Q1 -758.85 -792.72 ND

2006:Q2 -770.31 -826.34 ND

2006:Q3 -797.24 -859.01 ND

2006:Q4 -707.71 -892.93 ND

2007:Q1 -707.16 -924.02 ND

2007:Q2 ND -909.94 -727.21

2007:Q3 ND -910.72 -740.37

2007:Q4 ND -937.06 -754.71

2008:Q1 ND ND -774.82

2008:Q2 ND ND -746.75

2008:Q3 ND ND -743.71

2008:Q4 ND ND -758.79

Middle-left panelForeign Economic Activity*

Index, 2002Q1 = 100

Period Foreign Economic Activity May 2006 Greenbook June 2007 Forecast

2002:Q1 100.00 100.00 ND

2002:Q2 100.96 101.00 ND

2002:Q3 101.74 101.78 ND

2002:Q4 102.11 102.13 ND

2003:Q1 102.37 102.50 ND

2003:Q2 102.71 102.80 ND

2003:Q3 103.87 103.88 ND

2003:Q4 105.19 105.18 ND

2004:Q1 106.40 106.41 ND

2004:Q2 107.40 107.42 ND

2004:Q3 108.29 108.23 ND

2004:Q4 109.21 109.10 ND

2005:Q1 109.91 109.81 ND

2005:Q2 110.91 110.89 ND

Period Foreign Economic Activity May 2006 Greenbook June 2007 Forecast

2005:Q3 112.30 112.12 ND

2005:Q4 113.39 113.21 ND

2006:Q1 114.72 114.32 ND

2006:Q2 115.82 115.36 ND

2006:Q3 116.74 116.35 ND

2006:Q4 117.76 117.35 ND

2007:Q1 118.82 118.32 ND

2007:Q2 ND 119.34 119.93

2007:Q3 ND 120.36 120.99

2007:Q4 ND 121.39 122.04

2008:Q1 ND ND 123.10

2008:Q2 ND ND 124.16

2008:Q3 ND ND 125.23

2008:Q4 ND ND 126.30

* Weighted by U.S. merchandise export shares. Return to text

Middle-right panelBroad Real Dollar

Index, 2002Q1 = 100

Period Broad Real Dollar May 2006 Greenbook June 2007 Forecast

2002:Q1 100.00 100.00 ND

2002:Q2 98.41 98.37 ND

2002:Q3 96.69 96.67 ND

2002:Q4 97.42 97.41 ND

2003:Q1 95.39 95.38 ND

2003:Q2 92.04 92.03 ND

2003:Q3 92.16 92.14 ND

2003:Q4 89.12 89.10 ND

2004:Q1 87.64 87.66 ND

2004:Q2 89.91 89.82 ND

2004:Q3 89.05 88.95 ND

2004:Q4 85.94 85.90 ND

2005:Q1 85.15 85.12 ND

2005:Q2 86.47 86.40 ND

2005:Q3 87.18 87.20 ND

2005:Q4 88.07 88.12 ND

2006:Q1 86.81 86.94 ND

Period Broad Real Dollar May 2006 Greenbook June 2007 Forecast

2006:Q2 85.93 85.61 ND

2006:Q3 85.71 84.65 ND

2006:Q4 84.42 84.26 ND

2007:Q1 84.52 83.82 ND

2007:Q2 ND 83.45 83.15

2007:Q3 ND 83.06 82.58

2007:Q4 ND 82.65 82.15

2008:Q1 ND ND 81.81

2008:Q2 ND ND 81.50

2008:Q3 ND ND 81.16

2008:Q4 ND ND 80.82

Bottom-left panelReal Exports of Core Goods

Billions of chained (2000) dollars, annual rate

Period Real Exports of Core Goods June 2007 Model Forecast June 2007 Forecast

2002:Q1 587.60 600.44 ND

2002:Q2 606.03 603.12 ND

2002:Q3 607.94 605.27 ND

2002:Q4 595.29 605.78 ND

2003:Q1 596.45 606.96 ND

2003:Q2 593.66 610.44 ND

2003:Q3 601.17 619.94 ND

2003:Q4 627.42 631.99 ND

2004:Q1 639.50 644.49 ND

2004:Q2 654.86 656.14 ND

2004:Q3 666.68 667.12 ND

2004:Q4 679.87 678.71 ND

2005:Q1 687.37 689.31 ND

2005:Q2 709.63 701.09 ND

2005:Q3 708.29 714.65 ND

2005:Q4 729.50 725.36 ND

2006:Q1 757.09 736.34 ND

2006:Q2 770.22 744.97 ND

2006:Q3 787.21 751.93 ND

2006:Q4 809.14 759.18 ND

2007:Q1 811.03 766.73 ND

Period Real Exports of Core Goods June 2007 Model Forecast June 2007 Forecast

2007:Q2 ND 775.09 821.17

2007:Q3 ND 782.91 831.52

2007:Q4 ND 790.46 841.61

2008:Q1 ND 798.82 851.99

2008:Q2 ND 808.11 862.53

2008:Q3 ND 818.05 873.35

2008:Q4 ND 828.49 884.50

Bottom-right panelCore Exports in 2006

(Percent)

Nominal Share Real Growth*

1. Core Goods 100 10.8

2. Capital Goods 34 12.8

3. Ind. Supplies 29 13.0

4. Automotive 12 3.5

5. Consumer 14 11.5

6. Other 12 7.3

* Q4/Q4 percent change. Return to table

Exhibit 14What Explains the Improved Outlook for External Adjustment? (Part 2)

Top-left panelU.S. GDP

Trillions of chained (2000) dollars, annual rate

Period U.S. GDP May 2006 Greenbook June 2007 Forecast

2002:Q1 9.98 9.98 ND

2002:Q2 10.03 10.03 ND

2002:Q3 10.09 10.09 ND

2002:Q4 10.10 10.10 ND

2003:Q1 10.13 10.14 ND

2003:Q2 10.21 10.23 ND

2003:Q3 10.40 10.41 ND

2003:Q4 10.47 10.50 ND

2004:Q1 10.57 10.61 ND

2004:Q2 10.67 10.70 ND

Period U.S. GDP May 2006 Greenbook June 2007 Forecast

2004:Q3 10.75 10.81 ND

2004:Q4 10.82 10.90 ND

2005:Q1 10.91 11.00 ND

2005:Q2 11.00 11.09 ND

2005:Q3 11.12 11.20 ND

2005:Q4 11.16 11.25 ND

2006:Q1 11.32 11.39 ND

2006:Q2 11.39 11.50 ND

2006:Q3 11.44 11.59 ND

2006:Q4 11.51 11.67 ND

2007:Q1 11.54 11.76 ND

2007:Q2 ND 11.85 11.63

2007:Q3 ND 11.94 11.70

2007:Q4 ND 12.02 11.76

2008:Q1 ND ND 11.84

2008:Q2 ND ND 11.91

2008:Q3 ND ND 11.99

2008:Q4 ND ND 12.06

Top-right panelReal Imports of Core Goods

Billions of chained (2000) dollars, annual rate

Period Real Imports of Core Goods May 2006 Greenbook June 2007 Forecast

2002:Q1 925.31 923.17 ND

2002:Q2 967.39 964.59 ND

2002:Q3 987.42 984.60 ND

2002:Q4 997.10 993.84 ND

2003:Q1 993.75 993.79 ND

2003:Q2 1006.62 1003.06 ND

2003:Q3 1011.36 1006.32 ND

2003:Q4 1054.37 1049.24 ND

2004:Q1 1071.85 1073.35 ND

2004:Q2 1128.68 1125.10 ND

2004:Q3 1137.25 1130.82 ND

2004:Q4 1169.97 1162.60 ND

2005:Q1 1179.89 1182.30 ND

2005:Q2 1205.22 1197.66 ND

Period Real Imports of Core Goods May 2006 Greenbook June 2007 Forecast

2005:Q3 1206.88 1198.75 ND

2005:Q4 1249.72 1242.45 ND

2006:Q1 1273.71 1288.53 ND

2006:Q2 1286.53 1315.21 ND

2006:Q3 1311.63 1335.53 ND

2006:Q4 1326.30 1353.54 ND

2007:Q1 1309.96 1371.38 ND

2007:Q2 ND 1390.10 1312.59

2007:Q3 ND 1409.88 1325.23

2007:Q4 ND 1430.59 1335.51

2008:Q1 ND ND 1346.79

2008:Q2 ND ND 1360.50

2008:Q3 ND ND 1375.78

2008:Q4 ND ND 1392.24

Middle-left panelU.S. Oil Import Price

Dollars per barrel

Period U.S. Oil Import Price May 2006 Greenbook June 2007 Forecast

2002:Q1 18.37 18.37 ND

2002:Q2 24.05 24.05 ND

2002:Q3 25.53 25.53 ND

2002:Q4 25.75 25.75 ND

2003:Q1 30.73 30.73 ND

2003:Q2 26.42 26.42 ND

2003:Q3 28.04 28.04 ND

2003:Q4 27.74 27.74 ND

2004:Q1 30.92 30.92 ND

2004:Q2 34.55 34.55 ND

2004:Q3 37.56 37.56 ND

2004:Q4 40.91 40.91 ND

2005:Q1 39.90 39.89 ND

2005:Q2 46.28 46.30 ND

2005:Q3 55.29 55.24 ND

2005:Q4 55.39 55.40 ND

2006:Q1 55.09 55.12 ND

2006:Q2 63.81 64.73 ND

Period U.S. Oil Import Price May 2006 Greenbook June 2007 Forecast

2006:Q3 66.57 69.55 ND

2006:Q4 55.33 71.03 ND

2007:Q1 54.39 71.40 ND

2007:Q2 ND 71.33 63.24

2007:Q3 ND 71.05 67.63

2007:Q4 ND 70.65 68.32

2008:Q1 ND ND 68.46

2008:Q2 ND ND 68.57

2008:Q3 ND ND 68.63

2008:Q4 ND ND 68.79

Middle-right panelNet Investment Income


Period Net Investment Income May 2006 Greenbook June 2007 Forecast

2002:Q1 35.64 11.36 ND

2002:Q2 17.66 1.80 ND

2002:Q3 31.26 14.12 ND

2002:Q4 48.42 34.55 ND

2003:Q1 34.65 29.34 ND

2003:Q2 47.76 50.64 ND

2003:Q3 47.80 50.88 ND

2003:Q4 74.26 76.46 ND

2004:Q1 82.22 65.75 ND

2004:Q2 59.38 29.63 ND

2004:Q3 69.20 30.78 ND

2004:Q4 39.19 18.76 ND

2005:Q1 56.19 8.18 ND

2005:Q2 53.52 -0.50 ND

2005:Q3 72.81 25.71 ND

2005:Q4 35.32 -3.78 ND

2006:Q1 48.25 -17.74 ND

2006:Q2 49.16 -19.57 ND

2006:Q3 29.96 -20.76 ND

2006:Q4 45.31 -32.58 ND

2007:Q1 48.08 -48.92 ND

2007:Q2 ND -65.64 22.30

Period Net Investment Income May 2006 Greenbook June 2007 Forecast

2007:Q3 ND -78.78 12.25

2007:Q4 ND -91.64 -2.10

2008:Q1 ND ND -18.33

2008:Q2 ND ND -29.67

2008:Q3 ND ND -40.16

2008:Q4 ND ND -50.17

Bottom panelContribution of Real Net Exports to U.S. GDP Growth

(Percentage points)

Greenbook

May 2006 June 2007

2006 -.3 .5

2007: Q1 -.5 -.7

Q2 .3 1.0

H2 -.4 .1

2008 -- .0

Appendix 3: Materials used by Mr. Reinhart

Material for FOMC Briefing on Economic Projections of FOMC ParticipantsVincent R. ReinhartJune 27, 2007

Class I FOMC - Restricted-Controlled (FR)

Exhibit 1Summary of June Trial Run Economic Projections

Top panel

2007 2008 2009

GDP Growth

Central Tendency (2.2 to2.5)

(2.5 to2.8)

(2.6 to3.0)

(Central tendency of May projections) (2.0 to 2.5) (2.5 to 2.8) (2.5 to 3.0)

Range (2.0 to2.7)

(2.5 to3.0)

(2.0 to3.1)

(Range of May projections) (1.8 to 2.6) (2.4 to 3.0) (2.5 to 3.0)

2007 2008 2009

Unemployment Rate


(4.7 to4.8)

(4.7 to5.0)


Range (4.6 to4.8)

(4.5 to5.0)

(4.4 to5.1)


Core PCE Inflation


(1.8 to2.0)

(1.6 to2.0)


Range (1.9 to2.2)

(1.7 to2.1)

(1.5 to2.0)


Total CPI Inflation


(2.1 to2.3)

(2.0 to2.3)

Range (2.3 to3.7)

(2.0 to2.5)

(1.8 to2.5)

Exhibit 2Central Tendency and Range of June Economic Projections

Central tendencies and ranges of economic projections for years 2007 through 2009.Actual data for years 2002 through 2006, as estimated from the charts.

Top panelGDP Growth (Q4-to-Q4)

2002 2003 2004 2005 2006 2007 2008 2009

Actual 1.9 3.7 3.4 3.1 3.1 - - -

Upper End of Range - - - - - 2.7 3.0 3.1

Upper End of Central Tendency - - - - - 2.5 2.8 3.0

Lower End of Central Tendency - - - - - 2.2 2.5 2.6

Lower End of Range - - - - - 2.0 2.5 2.0

Top-middle panel

Civilian Unemployment Rate (Q4 level)

2002 2003 2004 2005 2006 2007 2008 2009

Actual 5.9 5.8 5.4 5.0 4.5 - - -





Bottom-middle panelCore PCE Inflation (Q4-to-Q4)

2002 2003 2004 2005 2006 2007 2008 2009

Actual 1.6 1.4 2.2 2.1 2.2 - - -





Bottom panelTotal CPI Inflation (Q4-to-Q4)

2002 2003 2004 2005 2006 2007 2008 2009

Actual 2.3 1.9 3.4 3.7 1.9 - - -





Exhibit 3Uncertainty and Risks- GDP Growth

Top panel2(a): Please indicate your judgment of the uncertainty attached to your projections relative tolevels of uncertainty over the past 20 years.

Higher(A)

Broadly similar(B)

Lower(C)

Number of participants 2 13 1

Bottom panel2(b): Please indicate your judgment of the risk weighting around your projections.

Weighted to upside(A)

Broadly balanced(B)

Weighted to downside(C)

Number of participants 0 12 4

Exhibit 4Distribution of Participants' Unemployment Projections: 2007-2009

Top panelDistribution of Unemployment Projections: 2007

Number of Respondents

4.4 4.5 4.6 4.7* 4.8 4.9 5.0 5.1

Current Projection 0 0 8 8 1 0 0 0

May Projection 0 1 2 5 8 1 0 0

* Greenbook Return to table

Middle panelDistribution of Unemployment Projections: 2008


4.4 4.5 4.6 4.7 4.8* 4.9 5.0 5.1




Bottom panelDistribution of Unemployment Projections: 2009


4.4 4.5 4.6 4.7 4.8 4.9* 5.0 5.1



* Greenbook Extension Return to table

Exhibit 5Distribution of Participants' Core PCE Inflation Projections: 2007-2009

Top panelDistribution of Core PCE Inflation Projections: 2007


1.5 1.6 1.7 1.8 1.9 2.0* 2.1 2.2 2.3 2.4

1.5 1.6 1.7 1.8 1.9 2.0* 2.1 2.2 2.3 2.4

Current Projection 0 0 0 0 3 6 3 5 0 0

May Projection 0 0 0 0 0 2 7 4 4 0


Middle panelDistribution of Core PCE Inflation Projections: 2008


1.5 1.6 1.7 1.8 1.9 2.0* 2.1 2.2 2.3 2.4


May Projection 0 0 0 6 1 5 3 1 0 1


Bottom panelDistribution of Core PCE Inflation Projections: 2009


1.5 1.6 1.7 1.8 1.9 2.0* 2.1 2.2 2.3 2.4


May Projection 2 2 2 2 3 5 0 0 1 0

* Greenbook Extension Return to table

Exhibit 6MONETARY POLICY REPORT ECONOMIC PROJECTIONS

Top panel2007 PROJECTIONS

FOMCStaff

Range Central Tendency

Percentage change, Q4 to Q4

Nominal GDP 4½ to 5½ 4½ to 5 4.8

February 2007 (4¾ to 5½) (5 to 5½) (5.0)

Real GDP 2 to 2¾ 2¼ to 2½ 2.2

February 2007 (2¼ to 3¼) (2½ to 3) (2.3)

Core PCE Prices 2 to 2¼ 2 to 2¼ 2.0

February 2007 (2 to 2¼) (2 to 2¼) (2.2)

Average level, Q4, percent

Unemployment rate 4½ to 4¾ 4½ to 4¾ 4.7

February 2007 (4½ to 4¾) (4½ to 4¾) (4.8)

Bottom panel2008 PROJECTIONS

FOMCStaff

Range Central Tendency

Percentage change, Q4 to Q4

Nominal GDP 4½ to 5½ 4¾ to 5 4.8

February 2007 (4¾ to 5½) (4¾ to 5¼) (4.8)

Real GDP 2½ to 3 2½ to 2¾ 2.5

February 2007 (2½ to 3¼) (2¾ to 3) (2.5)

Core PCE Prices 1¾ to 2 1¾ to 2 2.0

February 2007 (1½ to 2¼) (1¾ to 2) (2.0)

Average level, Q4, percent

Unemployment rate 4½ to 5 about 4¾ 4.8

February 2007 (4½ to 5) (4½ to 4¾) (4.9)


Material for FOMC Briefing on Monetary Policy AlternativesVincent ReinhartJune 27, 2007

Class I FOMC -- Restricted Controlled FR

Exhibit 1Financial Market Developments

Exhibit 1 summarizes important developments in financial markets over the intermeeting period.

Top-left panelExpected federal funds rates

A line chart shows the expected path of the federal funds rate based on futures quotes as of May 8,2007 and June 26, 2007. The chart indicates that investors revised up their expectations for the pathof the federal funds rate over the intermeeting period, particularly at longer horizons. The expectedfunds rate paths are estimated from federal funds and Eurodollar futures, with an allowance for termpremiums and other adjustments.

Top-right panelNominal and inflation indexed treasury yields

A line chart shows the nominal and inflation indexed Treasury yield curves on 6/26/2007 and on5/8/2007 (day before the FOMC meeting). Consistent with the upward revision in policyexpectations, both the nominal and inflation-indexed yields curves revised up substantially over theintermeeting period.

Middle-left panelDistribution of primary dealers' federal funds rate forecasts at year-end

A bar chart shows the distribution of primary dealers' forecasts for the level of the federal funds atthe end of 2007 as reported in the May and June FRBNY desk primary dealers' survey. Relative tothe distribution reported in the May survey, primary dealer forecasts submitted in June shifted to theright (toward higher rates) and become more tightly centered around a funds rate level of 5.25percent.

Bottom-left panelSubprime BBB- mortgage CDS index spreads

A line chart shows three daily time-series of subprime BBB- mortgage CDX index spreads for poolsof mortgages originated in 2005:H2, 2006:H1, and 2006:H2. Investors' concerns about the mortgagecredit quality are evident in a sharp increase in all three series over the period from September 2006through June 2007 with a particularly steep increase early in 2007. All three series moved sharplyhigher again over the period since the May FOMC meeting.

Note. Measured relative to Libor.

Source: JP Morgan.

Bottom-right panelChange in selected financial market quotes

May FOMC to Bluebook Bluebook to Tuesday

basis points

Ten-year Treasury 54 -6

basis points

Ten-year Indexed Treasury 44 -3

percent

S&P 500 0.96 -1.92

Exhibit 2Case for Alternative B

Top-left panelStaff Forecast

Real GDP Growth 2007 2008

May 2.0 2.4

June 2.2 2.5

Revision 0.2 0.1

Core PCE Inflation

May 2.3 2.1

June 2.0 2.0

Real GDP Growth 2007 2008

Revision -0.3 -0.1

Top-right panel2007 Q4 Target Funds Rate

A line chart shows the evolution over time of investors' expectations for the level of the federal fundsrate in 2007 Q4. The series dropped sharply earlier in the year but moved higher thereafter and stooda little above 5 percent at the end of June. The Greenbook assumption for the level of the federalfunds rate at year end remained at 5.25 percent for every FOMC date over the year.

Middle panelEquilibrium Real Federal Funds Rate

A line chart shows the actual real federal funds rate, a range of model-based estimates of theequilibrium real federal funds rate, and the Greenbook-consistent measure of the equilibrium realfunds rate from 1990 to 2007. Shading depicts the range of model-based estimates and also 70 and90 percent confidence intervals. The actual level of the real federal funds rate is somewhat above therange of model-based estimates of the equilibrium real funds rate but about in line with theGreenbook-consistent measure.

Bottom-left panelFRB/US Model Simulations of Estimated Outcome-Based Rule

A line chart shows the current and previous FRB/US model simulations of the outcome-based policyrule over the period from 2007 through 2012. Shading depicts the 70 and 90 percent confidenceintervals. The estimated prescriptions from the outcome-based rule are relatively stable at around 5percent through 2009 and then drift lower to about 4 percent in 2012. These estimates are littlechanged from those in the previous Bluebook.

Bottom-right panelImplied Distribution of Federal Funds Rate Six Months Ahead*

A bar chart shows June 26, 2007 (recent) and May 8, 2007 (last FOMC) implied distributions for thefederal funds rate six months ahead. The estimates are calculated using options on Eurodollar futurescontracts. Both distributions are skewed to the left with the majority of estimates at target rates of5.00 and 5.25 percent. The distribution for the June meeting has somewhat larger weights on higherinterest rate outcomes than for the comparable distribution estimated at the time of the May FOMCmeeting.

* Estimates from options on Eurodollar futures contracts, adjusted to estimate expectations for the federal funds rate. Returnto text

Exhibit 3Wording of the Statement

Top panel

May FOMCRevised

Alternative B

May FOMCRevised

Alternative B

1.The Federal Open Market Committee decided today to keepits target for the federal funds rate at 5 1/4 percent.

The Federal Open Market Committee decided today tokeep its target for the federal funds rate at 5 1/4percent.

2.

Could leave misimpression about jumping-off point

Economic growth slowed in the first part of the year and theadjustment in the housing sector is ongoing. Nevertheless,the economy seems likely to expand at a moderate pace overcoming quarters.

Changed to make clear H1 averaging

The economy appears to have grown at a moderatepace during the first half of this year, despite theongoing adjustment in the housing sector. Theeconomy seems likely to continue to expand at amoderate pace over the coming quarters.

3.

Twelve-month change in core PCE is 2 percent

Core inflation remains somewhat elevated. Althoughinflation pressures seem likely to moderate over time, thehigh level of resource utilization has the potential to sustainthose pressures.

Added to downweight recent data

Readings on core inflation have improved modestly inrecent months. However, a sustained moderation ininflation has yet to be convincingly demonstrated.Moreover, the high level of resource utilization has thepotential to sustain inflation pressures.

4.

In these circumstances, the Committee's predominant policyconcern remains the risk that inflation will fail to moderate asexpected. Future policy adjustments will depend on theevolution of the outlook for both inflation and economicgrowth, as implied by incoming information.

Reverted to May to emphasize policy stance hasn't changed

[Unchanged]

Exhibit 4

Tendency Toward Alternative C

Top-left panelResource utilization

A line chart shows the ISM (Institute for Supply Management) New Orders Index* and theunemployment rate from 2003 through 2007. The unemployment rate trends downward over theperiod, falling from approximately 6.0 to 4.5 percent. The ISM New Orders Index trends downwardover the rest of the period since 2004 but moved up appreciably over the first half of 2007.

* Three-month moving average. Return to text

Middle-left panelFive year forward inflation compensation

A line chart shows weekly data for the five year forward inflation compensation from 2003 through2007. The series hovers between 2.4 and 2.8 percent except for a period in 2003 and 2004 where itincreases to approximately 3.2 percent. Over recent months, five-year forward inflationcompensation has moved noticeably higher relative to levels observed earlier in 2007.

Bottom-left panelStatement

2. Despite the ongoing adjustment in the housing sector, the economy appears to have grown ata moderate pace so far this year.

3. '…in combination with earlier increases in the prices of energy and other commodities…'

Tendency Toward Alternative A

Top-right panelThirty-year fixed rate mortgage rate

A line chart shows the monthly average for the thirty-year fixed rate mortgage rate from 2003through 2007. The rate trends slightly upward, remaining between 5.0 and 6.8 percent for the entireperiod. In recent months, the mortgage rate moved up sharply from about 6-1/4 percent to about6-3/4 percent.

Middle-right panelMonths' supply of new homes

A line chart shows the monthly supply of new homes (millions of units, annual rate) using atwo-quarter moving average of sales. The data cover 2003 through 2008, where 2007:H2 through2008 is a forecast. The supply of new homes increases from 2003 through mid-year 2007 where itreaches a maximum of 7 million units. From mid-year 2007 through 2008, the supply is forecasted tosharply decline reaching approximately 4.6 million units at the end of 2008.

Bottom-right panelStatement

2. But ongoing weakness in the housing sector implies a significant risk that economic activitymight grow more slowly than anticipated.

3. Core inflation has edged lower in recent months and is expected to remain moderate overthe next year or so.

4. With this policy action, the Committee judges that the downside risk to economic growthnow roughly balances the upside risk to inflation.

Table 1:Alternative Language for the June 2007 FOMC Announcement

REVISED[Note: In Appendix 4, Table 1, strong emphasis (bold) has been added to indicate red text in the original document.]

May FOMC Alternative A Alternative B Alternative C

PolicyDecision

1. The Federal Open MarketCommittee decided today tokeep its target for the federalfunds rate at 5¼ percent.

The Federal Open MarketCommittee decided today tolower its target for the federalfunds rate 25 basis points to5 percent.

The Federal Open MarketCommittee decided today tokeep its target for the federalfunds rate at 5¼ percent.

The Federal Open MarketCommittee decided today toraise its target for the federalfunds rate 25 basis points to5½ percent.

Rationale

2. Economic growth slowedin the first part of the yearand the adjustment in thehousing sector is ongoing.Nevertheless, the economyseems likely to expand at amoderate pace over coming

So far this year, theeconomy appears to havegrown at a moderate paceand seems likely to continueto do so over comingquarters. But ongoingweakness in the housing

The economy appears tohave grown at a moderatepace during the first half ofthis year, despite theongoing adjustment in thehousing sector. The economyseems likely to continue to

Despite the ongoingadjustment in the housingsector, the economy appearsto have grown at amoderate pace so far thisyear. The economy seemslikely to continue to expand

May FOMC Alternative A Alternative B Alternative C

quarters. sector implies a significantrisk that economic activitymight grow more slowlythan anticipated.

expand at a moderate paceover coming quarters.

at a moderate pace overcoming quarters.

3. Core inflation remainssomewhat elevated. Althoughinflation pressures seemlikely to moderate over time,the high level of resourceutilization has the potential tosustain those pressures.

Core inflation has edgedlower in recent months andis expected to remainmoderate over the next yearor so. However, the highlevel of resource utilizationhas the potential to add toinflation pressures goingforward.

Readings on core inflationhave improved modestly inrecent months. However, asustained moderation ininflation has yet to beconvincingly demonstrated.Moreover, the high level ofresource utilization has thepotential to sustain inflationpressures.

Although readings on coreinflation have improvedmodestly in recent months,core inflation remainssomewhat elevated. Inflationpressures seem likely tomoderate over time, butconsiderable uncertaintysurrounds that judgment.Moreover, the high level ofresource utilization, incombination with earlierincreases in the prices ofenergy and othercommodities, has thepotential to sustain thosepressures.

Assessmentof Risk

4. In these circumstances, theCommittee's predominantpolicy concern remains therisk that inflation will fail tomoderate as expected. Futurepolicy adjustments willdepend on the evolution ofthe outlook for both inflationand economic growth, asimplied by incominginformation.

With this policy action, theCommittee judges that thedownside risk to economicgrowth now roughlybalances the upside risk toinflation. Future policyadjustments will depend onthe evolution of the outlookfor both inflation andeconomic growth, as impliedby incoming information.

[Unchanged]

Even after this action, theCommittee's predominantpolicy concern remains therisk that inflation will fail tomoderate as expected. Futurepolicy adjustments willdepend on the evolution ofthe outlook for both inflationand economic growth, asimplied by incominginformation.


Material for FOMC Briefing on FOMC CommunicationsVincent R. ReinhartJune 28, 2007

Class I FOMC - Restricted-Controlled (FR)

Exhibit 1Enhanced Economic Projections

1 Did the changes to the projections process address the concerns expressed in answer to the May survey?

Those concerns related to:

Sharing forecast submissionsProviding information on the federal funds rate pathCharacterizing uncertainty and risks about the forecast

2 In what form should the projections be released?

Option 1Stand-alone section in the minutes, reproduced in the Monetary Policy Report

Option 2Brief reference in the minutes, main narrative in an annex or separate document, reproduced in the MonetaryPolicy Report

Option 3Fully integrated discussion in the minutes and separate discussion in the Monetary Policy Report

3 When should the projections be finalized?

The choices include:

the day of the meetingthe end of the week of the meetingas late as practicable to be close to the official release of the document

Exhibit 2Minutes

4 How do you assess the benefits and costs of further expediting the minutes?

Potential Benefits Potential Costs

Will be more of an aid to the private sector inunderstanding the current outlookYou will be able to use material from the minutesfor public statements more promptlyMay facilitate making the post-meeting statementshorter or less substantive.

Increased effort to ensure your schedules alignwith drafting and approvalMight lead to more compromises that make theminutes less informativeMore staff resources will be needed

5 How do you assess the current content of the minutes, including the staff's description of recent data?

Exhibit 3 (Last page)Post-Meeting Statement

6 What is the appropriate role of the statement in light of the changes to the Committee's other communication devices?

7 Should the statement provide forward-looking guidance on the:

near-term prospects for the target federal funds rate?(The left hand side of the policy rule)medium-term prospects toward fostering the dual mandate?(The right hand side of the policy rule)

8 What policy rate assumption should the statement be based upon?

appropriate path of monetary policythe path expected in financial marketsan unchanged federal funds rate

9 What is the appropriate degree of pre-meeting consultation with participants on the statement?

10 Should the current approval process for the statement be continued?

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