Meeting of the Federal Open Market Committee

Towson UniversityNovember 18, 2005

Target Rate vs. Effective Funds Rate

Last Meeting

Raised Federal Funds Target Rate to

4.00%

Today’s Effective Federal Funds Rate

4.00%

Source: Bloomberg

Economic Indicators

Components of GDP Growth 3Q 2005

0 1 2 3 4 5 6 7 8 9

GDP Growth

Equipment and software

Residential FixedInvestment

Federal Governmentspending

Personal ConsumptionExpenditures

Source: BEA

Total Goods and Services3.8%

Consumer Price Index vs. Producer Price Index S.A.

January 1999-September 2005

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

1/1/

1999

4/1/

1999

7/1/

1999

10/1

/199

9

1/1/

2000

4/1/

2000

7/1/

2000

10/1

/200

0

1/1/

2001

4/1/

2001

7/1/

2001

10/1

/200

1

1/1/

2002

4/1/

2002

7/1/

2002

10/1

/200

2

1/1/

2003

4/1/

2003

7/1/

2003

10/1

/200

3

1/1/

2004

4/1/

2004

7/1/

2004

10/1

/200

4

1/1/

2005

4/1/

2005

7/1/

2005

10/1

/200

5

CPI PPI

CPI October 2005: +0.2%Core: +0.2%

PPI October 2005: +0.7%

Source: BLS

M/M

per

cent

cha

nge

Personal Consumption ExpendituresSeptember 2005

-0.20%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05

Source: BEA

PCE September 2005: 0.5%

Y/Y

per

cent

cha

nge

University of Michigan Consumer Sentiment SurveySeptember 2001-November 2005

0

20

40

60

80

100

120

Index

Sep

-01

Nov-

01

Jan-0

2

Mar

-02

May

-02

Jul-02

Sep

-02

Nov-

02

Jan-0

3

Mar

-03

May

-03

Jul-03

Sep

-03

Nov-

03

Jan-0

4

Mar

-04

May

-04

Jul-04

Sep

-04

Nov-

04

Jan-0

5

Mar

-05

May

-05

Jul-05

Sep

-05

Month

Source: Economy.com

Rose to 79.9 in November from 74.2 in October

Labor Sector

Payroll Employment S.A.January 2001-October 2005

-400

-300

-200

-100

0

100

200

300

400

500

Month to Month Net Change

1000s

Jan-0

0

Apr-

00

Jul-00

Oct-

00

Jan-0

1

Apr-

01

Jul-01

Oct-

01

Jan-0

2

Apr-

02

Jul-02

Oct-

02

Jan-0

3

Apr-

03

Jul-03

Oct-

03

Jan-0

4

Apr-

04

Jul-04

Oct-

04

Jan-0

5

Apr-

05

Jul-05

Oct-

05

Net Change October 2005+56,000

Source: BLS

Unemployment Ratevs. Labor Force Participation Rate

January 2004-November 2005

4.0%

4.2%

4.4%

4.6%

4.8%

5.0%

5.2%

5.4%

5.6%

5.8%

Jan-

04

Feb

-04

Mar

-04

Apr

-04

May

-04

Jun-

04

Jul-0

4

Aug

-04

Sep

-04

Oct

-04

Nov

-04

Dec

-04

Jan-

05

Feb

-05

Mar

-05

Apr

-05

May

-05

Jun-

05

Jul-0

5

Aug

-05

Sep

-05

Oct

-05

65.0%

65.2%

65.4%

65.6%

65.8%

66.0%

66.2%

66.4%

Unemployment Rate Labor Force Participation Rate

Une

mpl

oym

ent

Labor F

orce Participation

Source: BLS

Current Unemployment: 5.0%Current Labor Force Participation Rate: 66.1%

Total Initial Claimants S.A. October 2001-September 2005

0

50000

100000

150000

200000

250000

300000

Oct

-01

Dec

-01

Feb

-02

Apr

-02

Jun-

02

Aug

-02

Oct

-02

Dec

-02

Feb

-03

Apr

-03

Jun-

03

Aug

-03

Oct

-03

Dec

-03

Feb

-04

Apr

-04

Jun-

04

Aug

-04

Oct

-04

Dec

-04

Feb

-05

Apr

-05

Jun-

05

Aug

-05

Source: BLS

Tot

al J

oble

ss C

laim

s September 2005: 257,454

Productivity3rd Quarter 2005

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

M/M Business M/M Non Farm Business M/M Manufacturing Y/Y Business Y/Y Non Farm Business Y/Y Manufacturing

Per

cent

Cha

nge

Source: BLS

Finance Sector

Risk SpreadJanuary 2001-November 2005

0

1

2

3

4

5

6

7

8

9

1/5/2001 7/5/2001 1/5/2002 7/5/2002 1/5/2003 7/5/2003 1/5/2004 7/5/2004 1/5/2005 7/5/2005

10 Year Treasury Moody's Seasoned Aaa Corporate Bond Yield

Moody's Seasoned Baa Corporate Bond Yield

Inte

rest

Ra

te

Source: FRED

Term SpreadJanuary 2001-November 2005

0

1

2

3

4

5

6

1/5/2001 7/5/2001 1/5/2002 7/5/2002 1/5/2003 7/5/2003 1/5/2004 7/5/2004 1/5/2005 7/5/2005

3-month Treasury Constant Maturity 10-Year Treasury Constant Maturity Rate

Inte

rest

Ra

te

Source: FRED

International Sector

Trade and Current Account Deficits

Rank Country Exports

Y-T-D(billions, $US)

Imports

Y-T-D(billions, $US)

Surplus or Deficit

(billions, $US)

Percent of Total Trade

1 Canada $140.4 $189.7 -$49.3 19.70%

2 Mexico $81.4 $114.8 -$33.4 11.70%

3 China $25.5 $139.9 -$114.4 9.90%

4 Japan $40.4 $95.6 -$55.2 8.10%

5 Federal Republic of Germany

$23.2 $56.3 -$33.1 4.70%

All Countries $603.9 $1,073.4 -$469.5 ---------

Trade Deficit YTD: -$469,500,000,000Deficit as a percentage of 3rd Quarter GDP 2005: 3.7%Deficit as a percentage of 3rd Quarter GDP 2004: 5%

Source: Census Bureau, BEA

Foreign Exchange Rates

11/04/05 1 Month Ago

1 Year Ago Percent Change

1 Month

Percent Change

1 Year

Euro 0.8455 0.8391 0.7762 0.8% 8.91%

Yen 118.20 114.33 106.02 3.4% 11.5%

Yuan 8.0856 8.0920 8.2765 -0.1% -2.3%

Source: FRED

Energy Sector

Natural Gas vs. Effective Funds Rate

0

0.5

1

1.5

2

2.5

3

3.5

4

January February March April May June July August0

1

2

3

4

5

6

7

8

9

EFF Funds Rate 2005 U.S. Natural Gas Wellhead Price 2005Source: FRED, EIA

Eff

ect

ive

Fu

nd

s R

ate

$ p

er M

MB

TU

Crude Oil vs. Effective Funds Rate

0

0.5

1

1.5

2

2.5

3

3.5

4

January February March April May June July August September October0

10

20

30

40

50

60

70

Effective Federal Funds Rate 2005 Oil Prices 2005

Source: FRED, EIA

Eff

ect

ive

Fu

nd

s R

ate

$ p

er b

arre

l

Real Estate Sector

Existing Home Sales & New Home Sales Month to Month Percent Change

June 2005-September 2005

-0.12

-0.1

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08

Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05

Existing Home Sales New Home Sales

Source: National Association of Realtors

M/M

Pe

rce

nt

Ch

an

ge

Office Vacancy Rates for Select Metropolitan Areas, Mid-Year 2005

8.9%9.7%

10.9%

13.3%

15.7%16.3%

19.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Source: Delta Associates

Vac

ancy

Rat

e

30 Year Conventional Mortgage Rate, Weekly

4.8

5

5.2

5.4

5.6

5.8

6

6.2

6.4

6.6

1/8/

2004

2/8/

2004

3/8/

2004

4/8/

2004

5/8/

2004

6/8/

2004

7/8/

2004

8/8/

2004

9/8/

2004

10/8

/200

4

11/8

/200

4

12/8

/200

4

1/8/

2005

2/8/

2005

3/8/

2005

4/8/

2005

5/8/

2005

6/8/

2005

7/8/

2005

8/8/

2005

9/8/

2005

10/8

/200

5

11/8

/200

5

30 Year Convential Mortgage Rate

November 10, 2005: 6.36%

Pe

rce

nt

Source: FRED

Retail Sector

Retail & Food Services Sale, Y/Y Percent Change January 2001 through October 2005

Source: Dismal.com

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%Ja

n-01

May

-01

Sep

-01

Jan-

02

May

-02

Sep

-02

Jan-

03

May

-03

Sep

-03

Jan-

04

May

-04

Sep

-04

Jan-

05

May

-05

Sep

-05

Y/Y

Pe

rce

nt

Ch

an

ge

Discussion

The Committee believes that continuing to address potential inflation at a pace that is likely to be measured is the best course of action at present. Therefore we will raise the target rate twenty five basis points to 4.25 percent. The Committee will respond to any inflationary pressures with appropriate action to fulfill its obligation to maintain price stability.

To be released in a statement shortly following this meeting…

Thank You

Mileva CohenBrian DintermanThomas Dowling

Jessica FoxChris GoodmanAndrew Young

Dr. Matthew Chambers - Advisor