greenbooks · June 21, 2011
Greenbook/Tealbook
Prefatory Note
The attached document represents the most complete and accurate version available
based on original files from the FOMC Secretariat at the Board of Governors of the
Federal Reserve System.
Please note that some material may have been redacted from this document if that
material was received on a confidential basis. Redacted material is indicated by
occasional gaps in the text or by gray boxes around non-text content. All redacted
passages are exempt from disclosure under applicable provisions of the Freedom of
Information Act.
Content last modified 02/03/2017.
Authorized for Public Release
Class I FOMC – Restricted Controlled (FR)
Report to the FOMC
on Economic Conditions
and Monetary Policy
Book B
Monetary Policy:
Strategies and Alternatives
June 16, 2011
Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
The staff’s estimates of short-run r*—the real federal funds rate that, if
maintained, would return output to its potential in twelve quarters—generally declined
over the intermeeting period; by historical standards, these estimates of the equilibrium
real federal funds rate remain low, and most are below the estimated actual real federal
funds rate. The downward revisions in r* reflect the staff’s assessment that the economic
outlook has weakened, resulting in output gap projections that are wider than in the
previous Tealbook.1 As shown in the first two columns of the table in the exhibit
“Equilibrium Real Federal Funds Rate,” the estimates of short-run r* generated from the
FRB/US model and the EDO model that are conditioned on the staff outlook and
estimates of the output gap (that is, the “Tealbook-consistent” estimates) decreased 70
and more than 100 basis points, respectively.2 By contrast, the estimates of r* produced
by these models based on their own output projections and by the single-equation and
small structural models have changed little since the April Tealbook.3
The staff has marked up its near-term projection for core PCE inflation somewhat
but also expects greater slack in the labor market over the next several years.4 On
balance, the policy prescriptions from optimal control simulations of the FRB/US model
using the extended staff baseline projection now call for a slightly lower path for the
federal funds rate than in the previous Tealbook. This result is shown in the exhibit
“Constrained vs. Unconstrained Monetary Policy,” which is based on simulations of the
FRB/US model that assume policymakers place equal weight on keeping core PCE
inflation close to 2 percent, on keeping the unemployment rate close to the effective
NAIRU, and on minimizing changes in the federal funds rate. As has been true for some
time, the simulations indicate that the optimal path of policy is affected significantly by
1
For a discussion of these revisions, see Book A of the Tealbook.
The EDO model has been respecified and reestimated since the April Tealbook. To facilitate
comparison with current Tealbook estimates, the reported “Previous Tealbook” r* estimates generated with
the EDO model refer to estimates computed using the new model specification applied to the data available
at the time of the April Tealbook.
3
The estimate of r* generated by the single-equation model rose 20 basis points from the April
Tealbook because this model’s projections jump off from staff estimates of the output gap in late 2010 and
the first quarter of 2011, and these estimates narrowed a bit since April.
4
The staff’s baseline forecast incorporates the effects of the Federal Reserve’s large-scale asset
purchases as announced in November, and these effects are held at their baseline levels in the optimal
policy simulations.
2
Page 1 of 42
Strategies
Monetary Policy Strategies
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
Strategies
Equilibrium Real Federal Funds Rate
Short-Run Estimates with Confidence Intervals
Percent
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-8
-10
The actual real funds rate based on lagged core inflation
Range of four model-based estimates
70 Percent confidence interval
90 Percent confidence interval
Tealbook-consistent measure (FRB/US)
-6
-8
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-10
Short-Run and Medium-Run Measures
Current Tealbook
Previous Tealbook
-1.6
-1.1
-0.4
-2.7
-1.8
-1.1
-0.5
-2.5
Short-Run Measures
Single-equation model
Small structural model
EDO model
FRB/US model
Confidence intervals for four model-based estimates
70 percent confidence interval
90 percent confidence interval
Tealbook-consistent measures
EDO model
FRB/US model
-3.2 to 0.3
-4.2 to 1.2
-1.9
-2.2
-0.8
-1.5
(1.1
(1.1
(1.0
(1.2
(0.2 to 2.0
-0.4 to 2.6
(1.8
2.0
-1.0
-0.7
Medium-Run Measures
Single-equation model
Small structural model
Confidence intervals for two model-based estimates
70 percent confidence interval
90 percent confidence interval
TIPS-based factor model
Memo
Actual real federal funds rate
Note: Explanatory Note A provides background information regarding the construction of these measures and confidence
intervals. The actual real federal funds rate shown is based on lagged core inflation as a proxy for inflation expectations.
For information regarding alternative measures, see Explanatory Note A. Since April, the EDO model has been
re-specified and re-estimated. EDO estimates for the "Previous Tealbook" have been computed from the revised model,
using the data available at the time of the April Tealbook.
Page 2 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
Nominal Federal Funds Rate
Real Federal Funds Rate
Percent
8
8
Current Tealbook: Constrained
Previous Tealbook: Constrained
Current Tealbook: Unconstrained
6
6
4
Percent
4
2
2
0
0
-2
-2
-4
-4
-6
-6
4
2
2
0
0
-2
-2
-4
-4
-6
4
2010
2011
2012
2013
2014
2015
-6
-8
Civilian Unemployment Rate
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
2010
2011
2012
2013
2011
2012
2013
2014
2015
-8
Core PCE Inflation
Percent
11
3
2010
2014
2015
3
Four-quarter average
3.0
Percent
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
Page 3 of 42
2010
2011
2012
2013
2014
2015
0.0
Strategies
Constrained vs. Unconstrained Monetary Policy
(2 Percent Inflation Goal)
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
the lower-bound constraint on the nominal federal funds rate. With this constraint
Strategies
imposed, the funds rate does not begin to rise appreciably until the first quarter of 2014,
about one quarter later than in the April Tealbook. Even with this slightly more
stimulative path for the federal funds rate, the unemployment rate remains above the staff
estimate of the effective NAIRU until the third quarter of 2014, and core inflation stays
slightly below the assumed 2 percent objective until the first quarter of 2015 (black solid
lines).5 If the nominal funds rate could fall below zero, the optimal nominal funds rate,
according to this exercise, would decline to about negative 2 percent in 2012, before
returning to positive levels early in 2014 (blue dashed line), thereby yielding somewhat
more favorable macroeconomic conditions than those depicted in the constrained
simulation.
As shown in the exhibit “Policy Rules and Market-Based Expectations,” the
expected funds rate implied by the estimated outcome-based policy rule moves
appreciably away from its effective lower bound in the first quarter of 2013, about two
quarters later than in the previous Tealbook.6 In addition, the rule prescribes a lower path
for policy in 2013 and 2014 than in the April Tealbook, reflecting the staff’s revised
projections for the output gap and real GDP growth.
As shown to the right, information from financial markets suggests that investors’
expectations for the path of the federal funds rate have shifted down noticeably since the
last Tealbook. Market participants now expect the federal funds rate to move above the
current target range in the fourth quarter of 2012, about two quarters later than in the
April Tealbook. Thereafter, the funds rate rises gradually toward 2 percent by the end of
2014, about 100 basis points lower than in the previous Tealbook.7
The lower panel of the exhibit provides near-term prescriptions from simple
policy rules. As shown in the left-hand columns, prescriptions from most of the rules
remain at the effective lower bound. The right-hand columns display the prescriptions
that would arise from these rules in the absence of the lower-bound constraint.
Reflecting the upward revision to the projection of core inflation in the near-term, both
5
The staff’s estimate of the effective NAIRU falls from 6½ percent in the fourth quarter of 2010 to 6
percent by the first quarter of 2013, and then to 5¼ percent by the end of 2015, as the extended
unemployment benefits expire and labor market functioning progressively improves.
6
This rule is used to set the longer-run baseline path for the federal funds rate in the Tealbook forecast.
7
The path shown here corresponds to the “mean” funds rate path noted in Book A; the modal path for
the funds rate is below the “mean” path and implies a considerably flatter trajectory for the funds rate over
coming quarters.
Page 4 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
FRB/US Model Simulations of
Estimated Outcome-Based Rule
Information from Financial Markets
Percent
9
9
Current Tealbook
Previous Tealbook
8
Percent
9
9
Current Tealbook
Previous Tealbook
8
8
7
7
7
7
6
6
6
6
5
5
5
5
4
4
4
4
3
3
3
3
2
2
2
2
1
1
1
1
0
0
0
0
2011
2012
2013
2014
2011
2012
8
2013
2014
Note: As in the March Tealbook, the staff baseline projection for the federal funds rate is based on the outcomebased policy rule. Accordingly, the top-left panel does not report a separate series for the staff’s projected funds rate.
In both panels, the dark and light shading represent the 70 and 90 percent confidence intervals respectively.
Financial market quotes are as of June 15.
Near-Term Prescriptions of Simple Policy Rules
Constrained Policy
Unconstrained Policy
2011Q3
2011Q4
2011Q3
2011Q4
Taylor (1993) rule
Previous Tealbook
0.45
0.13
0.90
0.52
0.45
0.03
0.90
0.52
Taylor (1999) rule
Previous Tealbook
0.13
0.13
0.13
0.13
-2.25
-2.66
-1.73
-2.00
Estimated outcome-based rule
Previous Tealbook Outlook
0.13
0.13
0.13
0.13
-0.02
-0.09
-0.15
-0.19
Estimated forecast-based rule
Previous Tealbook Outlook
0.13
0.13
0.13
0.13
0.02
0.00
-0.15
-0.06
First-difference rule
Previous Tealbook Outlook
0.31
0.52
0.46
0.94
0.31
0.52
0.46
0.94
Memo
Staff assumption
Fed funds futures
Median expectation of primary dealers
Blue Chip forecast (June 1, 2011)
2011Q3
2011Q4
0.13
0.10
0.13
0.20
0.13
0.11
0.13
0.20
Note: In calculating the near-term prescriptions of these simple policy rules, policymakers’ long-run inflation objective is
assumed to be 2 percent. Explanatory Note B provides further background information. For rules which have the lagged
policy rate as a right-hand-side variable, the lines denoted "Previous Tealbook Outlook" report rule prescriptions based
on the previous Tealbook’s staff outlook, but jumping off from the average value for the policy rate thus far in the quarter.
Page 5 of 42
Strategies
Policy Rules and Market-Based Expectations
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
the Taylor (1993) and Taylor (1999) rules prescribe a higher federal funds rate than in
Strategies
April. In contrast, the first-difference rule, which looks beyond the recent pickup in core
inflation and is more influenced by the weaker outlook for economic activity, prescribes a
lower federal funds rate than in April. With the exception of the Taylor (1993) rule and
the first-difference rule—which responds to the staff’s projections for inflation and the
change in the output gap without regard for the still-elevated level of slack—all
unconstrained prescriptions take values that are at or below the effective lower bound.8
8
The prescription from the estimated forecast-based rule in the third quarter of 2011 is also positive in
the third quarter of 2011 though below the effective lower bound of 0.125 percent. Both this rule and the
first-difference rule depend on the lagged federal funds rate, defined as the actual policy rate observed thus
far this quarter. If instead the lagged values used in generating rule prescriptions had not been constrained
by the effective lower bound from becoming negative in 2009 and 2010, the prescriptions from both these
rules would be negative in both the third and fourth quarter of this year.
Page 6 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
Monetary Policy Alternatives
This Tealbook presents three policy alternatives—labeled A, B, and C—for the
Committee’s consideration. Compared with the April statement, these alternatives all
incorporate important structural changes. The discussion of inflation focuses on the
behavior of overall inflation, rather than “underlying” inflation. In addition, under the
proposed new format, the first paragraph outlines key information on economic activity
and inflation received since the previous FOMC meeting, while the second paragraph
presents information on the Committee’s outlook for unemployment and inflation relative
stable prices.1
With regard to key policy actions, all three alternatives would confirm that the
purchase of $600 billion of longer-term Treasury securities will be completed by the end
of June. Under both Alternatives A and B, the Committee would continue its policy of
reinvesting principal payments from its securities holdings, but under Alternative C, the
Committee would announce that it will discontinue the reinvestment policy in July as part
of “a gradual reduction in the current extraordinary degree of policy accommodation.”
Alternative B states that the Committee will regularly review the size and composition of
its securities holdings and that it is prepared to adjust those holdings “as appropriate.” In
contrast, Alternative A indicates that the Committee is prepared to expand securities
holdings “if needed.” In addition, Alternative A states that economic conditions are
likely to warrant maintenance of the reinvestment policy at least through mid-2012. Each
of the three alternatives would maintain the existing target range for the federal funds
rate. Alternative B retains the “extended period” language for the funds rate, while
Alternative A states that economic conditions will likely warrant exceptionally low levels
for the funds rate at least through the end of 2012. Alternative C would indicate that the
Committee anticipates that exceptionally low funds rates will be warranted “for some
time,” thus signaling that the Committee anticipates raising its target for the federal funds
rate sooner than markets currently expect.
1
A mockup of statement language featuring these changes was circulated by the Chairman to
Committee participants on May 24, 2011. A considerable amount of text that appeared in the April FOMC
statement is not used in the draft statements in this Tealbook. Consequently, the presentations of
Alternatives A, B, and C that appear below do not include strikeouts of April statement material.
Page 7 of 42
Alternatives
to values consistent with the Federal Reserve’s mandate for maximum employment and
Authorized for Public Release
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June 16, 2011
The statement language in Alternative B acknowledges recent weak data on
economic activity but reiterates that the Committee continues to expect progress toward
more satisfactory rates of unemployment and inflation. Alternative B states that
incoming information indicates that the recovery is continuing “somewhat more slowly”
than the Committee had expected. It also notes evidence suggesting a “loss of
momentum in the labor market.” The draft statement attributes the slower-than-expected
pace of recovery in part to the impact of higher food and energy prices on consumer
spending as well as supply chain disruptions associated with the tragic events in Japan.
Alternative B indicates that the Committee expects the pace of the recovery to pick up
and unemployment to resume its gradual decline toward mandate-consistent rates. In
Alternatives
referring to the recent pickup in inflation, Alternative B states that this increase mainly
reflects higher prices for some commodities and imported goods, as well as the recent
supply chain disruptions, and notes that inflation expectations have been stable.
Alternative B goes on to say that, as the effects on inflation of past energy and other
commodity price increases dissipate, inflation will likely subside to rates at or below
mandate-consistent levels.
The draft statement under Alternative A supports a shift toward increased
accommodation by indicating greater concern about the economic outlook and somewhat
less concern about prospects for inflation. It focuses on recent weakness in economic
activity, stating that the recovery is continuing “more slowly” than the Committee
expected, and indicating that the downside risks to the outlook have increased somewhat.
With regard to inflation, Alternative A states that the pass-through of commodity prices
to the prices of non-energy consumer goods and services has been relatively limited.
Omitted from Alternative A is Alternative B’s indication that the Committee will “pay
close attention to the evolution of inflation and inflation expectations.”
Alternative C supports the initiation of the removal of policy accommodation by
emphasizing the potential for a buildup of inflation pressures. Alternative C notes that
the pick-up in inflation has occurred as firms have faced cost pressures from increased
commodity prices and as import prices have risen. The draft statement also indicates that
upside risks to inflation have increased somewhat.
The next two pages contain a table that shows key elements of the alternatives.
The table is followed by complete draft statements, then by a summary of the arguments
for each alternative.
Page 8 of 42
Authorized for Public Release
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June 16, 2011
Table 1: Overview of Alternatives for the June 22 FOMC Statement
Key
Components
April
Statement
June Alternatives
A
B
C
Economic
Recovery
Labor
Market
Household
Spending
continuing at a
moderate pace,
continuing at a moderate pace, though
proceeding at a
though more slowly
somewhat more slowly than the Committee
moderate pace
than the Committee
had expected
had expected
slower pace of the recovery reflects in part some factors likely to be
temporary, including the damping effect of higher food and energy
prices on consumer purchasing power and spending as well as supply
chain disruptions associated with the tragic events in Japan
number of indicators
overall conditions in
suggest a loss of
some indicators suggest a loss of momentum
the labor market are
momentum in the
in the labor market
improving gradually
labor market
unemployment rate
unemployment rate remains elevated
remains elevated
continues to expand; damping effect of higher food and energy prices
continues to expand
on purchasing power and spending
Inflation
inflation has picked
up in recent months;
measures of
underlying inflation
still subdued and
somewhat low
Recent
Developments
expectations have
remained stable
inflation has picked up in recent months;
inflation has moved up recently
expectations have remained stable
pick-up mainly
reflects higher prices
increases in the
for some commodities
prices of energy and and imported goods,
other commodities
as well as recent
have pushed up
supply chain
inflation in recent
disruptions; relatively
months
limited pass-through
to non-energy
consumer prices
Committee will pay
close attention to
inflation and
n.a.
inflation
expectations
Page 9 of 42
pick-up mainly
reflects higher prices
for some commodities
and imported goods,
as well as recent
supply chain
disruptions
firms are facing cost
pressures from
increased commodity
prices and import
prices have risen
Committee will continue to pay close attention
to inflation and inflation expectations
Alternatives
Economic Activity
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Class I FOMC - Restricted Controlled (FR)
June 16, 2011
Table 1: Overview of Alternatives for the June 22 FOMC Statement
(continued)
Key
Components
April
Statement
June Alternatives
A
B
C
Outlook
Alternatives
Outlook
Committee
continues to
anticipate gradual
return to higher
levels of resource
utilization in context
of price stability
Committee expects
effects of
commodity price
rises on inflation to
be transitory
Committee expects pace of recovery to pick up over coming
quarters and unemployment to resume its gradual decline
increased downside
risks to economic
outlook
n.a.
Committee anticipates inflation will subside to levels at or below
those consistent with the Committee’s dual mandate as the effects
on inflation of past energy and other commodity price increases
dissipate
increased upside
n.a.
risks to inflation
Federal Funds Rate Target Range
Intermeeting
Period
Forward
Guidance
0 to ¼ percent
exceptionally low
levels for an
extended period
0 to ¼ percent
exceptionally low
levels at least
through the end of
2012
exceptionally low
levels for an
extended period
exceptionally low
levels for some time
SOMA Portfolio Policy
complete purchase
program by end of
June
Approach
maintain
reinvestment policy
complete purchase program by end of June
maintain
reinvestment policy
at least through mid
2012
maintain
end reinvestment
reinvestment policy policy in July
Future Policy Action
will regularly
review the size and
Asset Purchases / composition of its
Holdings
securities holdings
and prepared to
adjust as needed
will continue to
monitor economic
outlook and
financial
developments; will
Overall
employ tools to
support recovery
and help ensure
inflation at mandateconsistent levels
will regularly
review securities
holdings; will
expand if needed
will regularly review the size and composition
of its securities holdings and prepared to
adjust as appropriate
will monitor the economic outlook and financial developments and
will act as needed to best foster maximum employment and price
stability
Page 10 of 42
Authorized for Public Release
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June 16, 2011
APRIL FOMC STATEMENT
2. Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The unemployment rate remains elevated, and
measures of underlying inflation continue to be somewhat low, relative to levels that
the Committee judges to be consistent, over the longer run, with its dual mandate.
Increases in the prices of energy and other commodities have pushed up inflation in
recent months. The Committee expects these effects to be transitory, but it will pay
close attention to the evolution of inflation and inflation expectations. The
Committee continues to anticipate a gradual return to higher levels of resource
utilization in a context of price stability.
3. To promote a stronger pace of economic recovery and to help ensure that inflation,
over time, is at levels consistent with its mandate, the Committee decided today to
continue expanding its holdings of securities as announced in November. In
particular, the Committee is maintaining its existing policy of reinvesting principal
payments from its securities holdings and will complete purchases of $600 billion of
longer-term Treasury securities by the end of the current quarter. The Committee will
regularly review the size and composition of its securities holdings in light of
incoming information and is prepared to adjust those holdings as needed to best foster
maximum employment and price stability.
4. The Committee will maintain the target range for the federal funds rate at 0 to 1/4
percent and continues to anticipate that economic conditions, including low rates of
resource utilization, subdued inflation trends, and stable inflation expectations, are
likely to warrant exceptionally low levels for the federal funds rate for an extended
period.
5. The Committee will continue to monitor the economic outlook and financial
developments and will employ its policy tools as necessary to support the economic
recovery and to help ensure that inflation, over time, is at levels consistent with its
mandate.
Page 11 of 42
Alternatives
1. Information received since the Federal Open Market Committee met in March
indicates that the economic recovery is proceeding at a moderate pace and overall
conditions in the labor market are improving gradually. Household spending and
business investment in equipment and software continue to expand. However,
investment in nonresidential structures is still weak, and the housing sector continues
to be depressed. Commodity prices have risen significantly since last summer, and
concerns about global supplies of crude oil have contributed to a further increase in
oil prices since the Committee met in March. Inflation has picked up in recent
months, but longer-term inflation expectations have remained stable and measures of
underlying inflation are still subdued.
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June 16, 2011
Alternatives
JUNE FOMC STATEMENT—ALTERNATIVE A
1. Information received since the Federal Open Market Committee met in April
suggests that the economic recovery is continuing at a moderate pace, though more
slowly than the Committee had expected. Moreover, a number of indicators
suggest a loss of momentum in the labor market. The slower pace of the
recovery reflects in part some factors that are likely to be temporary, including
the damping effect of higher food and energy prices on consumer purchasing
power and spending as well as supply chain disruptions associated with the
tragic events in Japan. Household spending and business investment in equipment
and software continue to expand. However, investment in nonresidential structures is
still weak, and the housing sector continues to be depressed. Inflation has picked up
in recent months, mainly reflecting higher prices for some commodities and
imported goods, as well as the recent supply chain disruptions. Although firms
are facing cost pressures from high commodity prices, the pass-through into the
prices of non-energy consumer goods and services has been relatively limited,
and longer-term inflation expectations have remained stable.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The unemployment rate remains elevated; however,
the Committee expects the pace of recovery to pick up over coming quarters and
the unemployment rate to resume its gradual decline toward levels that the
Committee judges to be consistent with its dual mandate. The Committee perceives
that the downside risks to the economic outlook have increased somewhat.
Inflation has moved up recently, but the Committee anticipates that inflation will
subside to levels at or below those consistent with the Committee’s dual mandate
as the effects on inflation of past energy and other commodity price increases
dissipate.
3. To promote the ongoing economic recovery and to help ensure that inflation, over
time, is at levels consistent with its mandate, the Committee is keeping the target
range for the federal funds rate at 0 to ¼ percent and now anticipates that economic
conditions—including low rates of resource utilization and a subdued outlook for
inflation over the medium run—are likely to warrant exceptionally low levels for
the federal funds rate at least through the end of 2012. The Committee likewise
anticipates that economic conditions will warrant the maintenance of its existing
policy of reinvesting principal payments from its securities holdings at least through
mid-2012. The Committee will complete its purchases of $600 billion of longer-term
Treasury securities by the end of this month. The Committee will regularly review
the size and composition of its securities holdings and is prepared to expand those
holdings if needed.
4. The Committee will monitor the economic outlook and financial developments and
will act as needed to best foster maximum employment and price stability.
Page 12 of 42
Authorized for Public Release
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June 16, 2011
JUNE FOMC STATEMENT—ALTERNATIVE B
2. Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The unemployment rate remains elevated; however,
the Committee expects the pace of recovery to pick up over coming quarters and
the unemployment rate to resume its gradual decline toward levels that the
Committee judges to be consistent with its dual mandate. Inflation has moved up
recently, but the Committee anticipates that inflation will subside to levels at or
below those consistent with the Committee’s dual mandate as the effects on
inflation of past energy and other commodity price increases dissipate.
However, the Committee will continue to pay close attention to the evolution of
inflation and inflation expectations.
3. To promote the ongoing economic recovery and to help ensure that inflation, over
time, is at levels consistent with its mandate, the Committee decided today to
maintain the current degree of monetary policy accommodation. In particular,
the Committee will keep the target range for the federal funds rate at 0 to ¼ percent
and continues to anticipate that economic conditions—including low rates of resource
utilization and a subdued outlook for inflation over the medium run—are likely to
warrant exceptionally low levels for the federal funds rate for an extended period.
The Committee will complete its purchases of $600 billion of longer-term Treasury
securities by the end of this month and will maintain its existing policy of reinvesting
principal payments from its securities holdings. The Committee will regularly review
the size and composition of its securities holdings and is prepared to adjust those
holdings as appropriate.
4. The Committee will monitor the economic outlook and financial developments and
will act as needed to best foster maximum employment and price stability.
Page 13 of 42
Alternatives
1. Information received since the Federal Open Market Committee met in April
indicates that the economic recovery is continuing at a moderate pace, though
somewhat more slowly than the Committee had expected. Some indicators also
suggest a loss of momentum in the labor market. The slower pace of the
recovery reflects in part some factors that are likely to be temporary, including
the damping effect of higher food and energy prices on consumer purchasing
power and spending as well as supply chain disruptions associated with the
tragic events in Japan. Household spending and business investment in equipment
and software continue to expand. However, investment in nonresidential structures is
still weak, and the housing sector continues to be depressed. Inflation has picked up
in recent months, mainly reflecting higher prices for some commodities and
imported goods, as well as the recent supply chain disruptions. However, longerterm inflation expectations have remained stable.
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
JUNE FOMC STATEMENT—ALTERNATIVE C
Alternatives
1. Information received since the Federal Open Market Committee met in April
indicates that the economic recovery is continuing at a moderate pace, though
somewhat more slowly than the Committee had expected. Some indicators also
suggest a loss of momentum in the labor market. The slower pace of the
recovery reflects in part some factors that are likely to be temporary, including
the damping effect of higher food and energy prices on consumer purchasing
power and spending as well as supply chain disruptions associated with the
tragic events in Japan. Household spending and business investment in equipment
and software continue to expand. However, investment in nonresidential structures is
still weak, and the housing sector continues to be depressed. Inflation has picked up
in recent months, as firms are facing cost pressures from increased commodity
prices and import prices have risen. Longer-term inflation expectations have
remained stable.
2. Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability. The unemployment rate remains elevated; however,
the Committee expects the pace of recovery to pick up over coming quarters and
the unemployment rate to resume its gradual decline toward levels that the
Committee judges to be consistent with its dual mandate. Inflation has moved up
recently, but the Committee anticipates that inflation will subside to levels at or
below those consistent with the Committee’s dual mandate as the effects on
inflation of past energy and other commodity price increases dissipate.
However, the upside risks to inflation have increased somewhat, and the
Committee will continue to pay close attention to the evolution of inflation and
inflation expectations.
3. In order to help ensure that economic activity and inflation, over time, are at levels
consistent with its mandate, the Committee decided today to keep the target range for
the federal funds rate at 0 to ¼ percent and anticipates that economic conditions—
including low rates of resource utilization and a subdued outlook for inflation over
the medium run—are likely to warrant exceptionally low levels for the federal funds
rate for some time. The Committee will complete its purchases of $600 billion of
longer-term Treasury securities by the end of this month. In July, the Committee
will begin a gradual reduction in the current extraordinary degree of policy
accommodation by discontinuing its policy of reinvesting principal payments from
its holdings of agency securities and Treasury securities. The Committee will
regularly review the size and composition of its securities holdings and is prepared to
adjust those holdings as appropriate.
4. The Committee will monitor the economic outlook and financial developments and
will act as needed to best foster maximum employment and price stability.
Page 14 of 42
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THE CASE FOR ALTERNATIVE B
Despite the weaker-than-expected economic data releases received over the
intermeeting period, policymakers may view the medium-term outlook for real activity
and inflation as having changed only modestly, on balance, since the April meeting.
Committee members, like the staff, may see the economy picking up over coming
quarters, and the unemployment rate gradually returning to levels consistent with the
Committee’s dual mandate. Likewise, Committee members may take the view that a
decline in inflation to mandate-consistent levels is already in train. Moreover, members
may judge that the outlook for inflation over the medium run remains subdued, noting the
presence of a number of forces—including stable inflation expectations, a flat profile for
that are likely to result in inflation falling to rates at or below mandate-consistent levels.
Against this backdrop, Committee members might favor a statement along the lines of
Alternative B, announcing that the Committee has decided to maintain the current degree
of monetary policy accommodation by completing the $600 billion Treasury purchase
program, keeping the Federal Reserve’s securities portfolio at the level reached following
the completion of the program, and continuing to indicate that the federal funds rate
target will be exceptionally low for an extended period.2
The Committee may judge that maintenance of the existing degree of policy
accommodation is an appropriate response to the current economic outlook. Committee
members may believe that the tragic events in Japan likely had a larger downward effect
on the U.S. economy in the second quarter than was anticipated earlier and continue to
expect much of that effect to be reversed in the coming quarter. Policymakers may, in
addition, view energy market developments as less likely to damp economic activity
going forward. The Committee may therefore judge that a significant step-up in real
GDP growth is in prospect for the second half of the year as several of the recent sources
of downward pressure on economic activity dissipate. As a result, Committee members
may conclude that information received on economic activity since the April meeting
2
The extent to which holding constant the size of the Federal Reserve's securities portfolio maintains
the current degree of accommodation over time depends partly on expectations about the timing for the
process of balance sheet normalization. If investors believe that the balance sheet will begin to decline
earlier than previously expected, that would represent an implicit policy tightening. Even if the expected
timing of balance sheet normalization is unchanged, simply getting closer to the date at which the Federal
Reserve is expected to begin returning the size of the balance sheet to normal will tend to boost term
premiums and raise longer-term interest rates in the staff’s model. See the box titled “Declining Stimulus
from Large-Scale Asset Purchases” for a more complete discussion of this issue.
Page 15 of 42
Alternatives
commodity prices going forward, and considerable slack in labor and product markets—
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June 16, 2011
Declining Stimulus from Large‐Scale Asset Purchases
Alternatives
The FOMC’s program of large‐scale asset purchases appears to have reduced
term premiums, thereby lowering long‐term interest rates, boosting asset prices,
and stimulating real activity. Of course, estimates of these term premium effects
are highly uncertain. Consistent with some simple theoretical models, the staff
has assumed that the effect on the term premium of SOMA holdings of longer‐
term securities is proportional to a discounted value of the ratio of Federal
Reserve holdings to nominal GDP relative to the average historical ratio of
Federal Reserve holdings to nominal GDP.1 The forward‐looking nature of this
term premium effect implies that it declines in size as investors anticipate that
the normalization of the balance sheet is drawing nearer, even if SOMA holdings
of longer‐term securities have not yet changed.
The chart on the left shows the projected evolution of longer‐term SOMA
security holdings under the baseline balance sheet scenario. The baseline
balance sheet projections assume that SOMA holdings begin to decline in March
2012 with the cessation of the reinvestment of principal payments on securities;
sales of assets from the portfolio begin in mid‐2013. Assuming that both actual
and expected Federal Reserve securities holdings follow this trajectory over time,
the chart on the right shows the path of the staff’s estimate of the associated
term premium effect. As can be seen, the magnitude of the term premium effect
is projected to decline from about 50 basis points in late 2010 to 25 basis points
by late 2012 even though the size of the balance sheet remains constant until the
first quarter of next year. The decline in the term premium effect reflects the
greater importance of the lower future values of holdings relative to GDP as the
period covered in the calculation shifts forward in time. However, if market
participants revise their expectations for the timing of the normalization of the
balance sheet by pushing it further off into the future as time passes, then these
term premium effects would not fade as rapidly or could even increase.
1
The details of the model are described in the April 21, 2010, memo to the FOMC “Quantitative
Analysis of the Macroeconomic Effects of Alternative Strategies for Managing the Federal
Reserve’s Asset Holdings” by Jane Ihrig, Elizabeth Klee, Andrew Levin, David Lopez‐Salido,
Edward Nelson, Min Wei, David Reifschneider, Thomas Tallarini, and Antonella Tutino.
Page 16 of 42
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June 16, 2011
does not call for a change in the degree of policy accommodation, and they therefore may
be inclined to adopt a statement like Alternative B.
Some Committee members may see greater grounds for concern about the
outlook. They may view the intermeeting data as having raised the prospect that the
improvement in overall labor market conditions could stall in the near term while the
underlying pace of household spending remains weak. Members may see the optimal
control simulations presented in the “Monetary Policy Strategies” section of the
Tealbook, which continue to call for significant near-term policy easing, as reinforcing
the case for providing additional monetary policy accommodation. However, participants
may also judge that the potential costs of expanding the Federal Reserve’s securities
outweigh the likely benefits. For example, policymakers might be concerned that
increasing the degree of policy accommodation could leave the Committee unable to
tighten rapidly enough if the economy began to expand briskly. Alternatively, they may
fear that the very high level of reserve balances currently in place could boost inflation
expectations and so lead to higher actual inflation. As a result, even policymakers who
see the downside risks to the outlook for economic growth as having increased somewhat
may take the view that further evidence of a significant downshift in the pace of
economic activity is required before it would be prudent for the Committee to take steps
to increase the degree of policy accommodation. These participants might therefore
favor an announcement along the lines of Alternative B at this meeting.
Policymakers may also judge that the intermeeting news on inflation does not
justify a change in the degree of monetary policy accommodation. Increases in the prices
of energy and other commodities and in the prices of imported goods have boosted
overall inflation for much of this year, but the effects on inflation of past energy and
other commodity price increases are likely to dissipate. Recent upward pressure on
motor vehicle prices, associated with supply chain disruptions, should also recede. In
addition, subdued unit labor costs, reflecting considerable slack in labor markets, should
continue to be a restraining influence on inflation. Members may further note that both
survey and market-based measures of longer-term inflation expectations have changed
little, on balance, over the course of the year so far. Committee members may conclude
that a wide variety of indicators—stable longer-term inflation expectations, low levels of
resource utilization, and low rates of increase in indexes of core prices and non-energy
costs—point to a subdued outlook for inflation over the medium term. Accordingly,
Page 17 of 42
Alternatives
holdings further or providing firmer forward guidance regarding the federal funds rate
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June 16, 2011
Committee members may judge that maintaining the current degree of policy
accommodation, as in Alternative B, would help ensure that inflation, over time, is at
levels consistent with the Committee’s dual mandate. Even if policymakers were more
concerned about the risk of a continuation of inflation rates in excess of mandateconsistent levels, they may see a reduction in the degree of policy accommodation as
appropriate only if such concerns were reinforced by additional data on inflation and
inflation expectations, and so favor for now a statement like Alternative B.
A statement along the lines of Alternative B would be unlikely to surprise market
participants. The Desk’s recent survey of primary dealers indicated that respondents
expected the Committee to retain the “extended period” language for the funds rate and to
Alternatives
confirm that the asset purchase program will be completed as scheduled and that the
reinvestment policy will be maintained. Accordingly, although there might be some
initial volatility in response to the fairly extensive changes in the statement language, the
release of a statement like Alternative B would likely result in little lasting change in
bond yields, equity prices, or the foreign exchange value of the dollar. Of course, the
Chairman’s press conference will provide an opportunity to answer questions about
changes in the language, structure, and other elements of the statement.
THE CASE FOR ALTERNATIVE A
Policymakers may view the information received since the April meeting as
suggesting that it is fairly likely that additional policy accommodation will be needed in
order to promote outcomes consistent with the Federal Reserve’s dual mandate.
Consequently, members might judge that it is desirable for the June statement to convey
the Committee’s readiness to expand the Federal Reserve’s holdings of securities if
needed and to provide forward guidance about the reinvestment policy, as in Alternative
A. Together with these indications concerning its future securities holdings, the
Committee might wish to provide more explicit forward guidance about the likely
duration of the period of exceptionally low federal funds rates to help prevent longerterm interest rates from rising rapidly as the recovery progresses.
Policymakers may regard the information received since the April meeting as
adding to evidence that the economic recovery has softened. While acknowledging that
some of the factors that have restrained economic activity in the second quarter are likely
to prove transitory, Committee participants may also see a number of factors that are
Page 18 of 42
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likely to cause a more persistent slowing of the pace of the economic recovery, including
weaker-than-expected growth in disposable personal income and the persistent low level
of consumer confidence. Moreover, some participants may view the backup in the
unemployment rate, the recent elevated level of initial claims, and the disappointing
payrolls increase in May as indications that overall labor market conditions are improving
at a significantly slower rate than previously or even have stopped improving altogether.
In addition, the housing market remains extremely depressed and the risk of significant
dislocations in Europe have likely increased since the April meeting. Policymakers may
also be concerned about the possible impact on growth and employment of a larger-thananticipated fiscal contraction. Against this backdrop, participants may have significantly
lines of the “Weaker Recovery” alternative simulation. As a result, they may judge that
provision of an increased degree of monetary policy accommodation could well prove
necessary in the near future, leading them to favor a statement like Alternative A.
Other participants may view a return to a more acceptable pace of recovery as the
most likely outcome, but see the risks to the outlook for real activity as having shifted
importantly to the downside. These policymakers may view the modifications to the
statement language in Alternative A as a prudent reaction to recent economic
developments. They may regard a clear indication that the Committee recognizes the
downside risks to the outlook and stands ready to ease monetary policy appropriately as
especially important when, as now, the scope for fiscal policy to respond flexibly to
developments in the outlook is severely circumscribed. Members may see a statement
along the lines of Alternative A as likely to bolster confidence and so strengthen the
recovery, even if no further easing step is ultimately required.
While noting that inflation has recently exceeded levels that the Committee
regards as consistent with its mandate, policymakers may view the outlook for inflation
over the medium run as subdued, especially given the amount of resource slack they
anticipate over the projection period and the continuing signs that longer-term inflation
expectations are well anchored. Indeed, having marked down their outlook for growth
and employment, policymakers may view the main risks to inflation over the projection
period as being to the downside, with a significant danger that inflation will persistently
fall below mandate-consistent levels over coming quarters. Consequently, policymakers
may feel that both the employment and price stability components of the dual mandate
justify a statement along the lines of Alternative A.
Page 19 of 42
Alternatives
downgraded their assessment of the medium-run economic outlook, perhaps along the
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June 16, 2011
An announcement indicating that the Committee is prepared to expand its
securities holdings, accompanied by the provision of stronger forward guidance, would
surprise market participants. Longer-term yields could decline, although the decline
might be restrained if investors perceived the statement as adding to the upside risks to
inflation. Equity prices would probably rise, and the foreign exchange value of the dollar
would likely decline.
THE CASE FOR ALTERNATIVE C
Committee members may view the slower-than-expected progress of the
recovery so far this year as largely or wholly attributable to temporary factors. For
Alternatives
example, they may view the disruptions to auto production and sales associated with the
tragic events in Japan as a particularly important factor behind the recent softness in
economic activity, and see a near-term rebound as highly likely. Policymakers may
further judge that accommodative financial conditions are likely to underpin an
acceleration of economic activity in the second half of this year. Indeed, some
Committee members may see a sizable probability that real activity will pick up strongly,
accompanied by a rise in inflation, perhaps along the lines of the “Stronger Recovery”
alternative simulation. Alternatively, some members may see a risk of a further pickup of
inflation because they believe that potential output over the medium term will prove
considerably lower than previously thought, as in the “Labor Market Damage” alternative
simulation. If Committee participants judge that output growth is likely to step up and
that there is a significant risk that inflation will continue at elevated levels or even
increase further, they may feel that it is appropriate at this juncture to begin the gradual
process of withdrawing the current extraordinary degree of monetary policy
accommodation. As the first steps in that process, members may favor an announcement
that the Committee’s reinvestment policy will be discontinued, combined with the
removal of the “extended period” language for the federal funds rate, along the lines of
Alternative C.
Members may believe that the extraordinary degree of monetary policy
accommodation provided in recent years, including the soon-to-be-completed purchase
program, has already put in place sufficient support for the economic recovery. As a
result, they may judge that the most important contribution that monetary policy can
make going forward is to ensure that longer-term inflation expectations remain stable.
They may see this as helping to fulfill the dual mandate both by ensuring that inflation is
Page 20 of 42
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June 16, 2011
at mandate-consistent levels over the intermediate term and by providing a stable
background for a sustainable recovery in real activity. Policymakers may feel that the
current degree of monetary policy accommodation jeopardizes the stability of inflation
and inflation expectations. For example, they may view the current degree of policy
accommodation as increasing the danger that firms will raise the extent to which they
pass through to consumer prices the higher costs arising from recent increases in the
prices of commodities and imported goods. If so, participants might conclude that the
Committee can best foster its dual mandate by taking the first step in withdrawing
monetary policy accommodation, along the lines outlined in Alternative C.
In addition, some participants may believe that the removal of the “extended
achievement of the Committee’s dual mandate by supporting financial stability.
Participants might feel that the economy is more prone to asset price misalignments when
the federal funds rate is very low and the Committee indicates that it is likely to remain
so, and they might view such misalignments as a major obstacle to the achievement of the
Committee’s dual mandate in the long run. Policymakers might regard a curtailment of
the statement’s forward guidance for the funds rate as helpful in fostering market
expectations of a more normal funds rate over time, thereby contributing to the
prevention of destabilizing asset market behavior. Such an outlook would provide
additional support for a statement like that in Alternative C.
A statement that replaced the “extended period” language and announced the
discontinuation of the reinvestment program would completely surprise market
participants. As a result, longer-term interest rates would likely increase, although the
Committee’s move to tighten policy sooner than investors currently anticipate might lead
to some reduction in inflation compensation. Stock prices would likely decline, and the
foreign exchange value of the dollar would probably increase.
Page 21 of 42
Alternatives
period” language regarding the funds rate would contribute to the longer-term
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June 16, 2011
LONG-RUN PROJECTIONS OF THE BALANCE SHEET AND MONETARY BASE
The staff has prepared two scenarios for the Federal Reserve’s balance sheet that
correspond to the policy Alternatives A, B, and C; although the language in the
statements differs, Alternatives A and B have the same balance sheet projection.
Projections under each scenario are based on assumptions about various components of
the balance sheet. Details of these assumptions, as well as projections for each major
Alternatives
component of the balance sheet, can be found in Explanatory Note C.
For the scenario that corresponds to Alternatives A and B, we assume that the
FOMC completes the announced $600 billion expansion of its holdings of longer-term
Treasury securities by the end of the second quarter of 2011. The purchases bring
System Open Market Account (SOMA) holdings to roughly $2.6 trillion and the size of
the balance sheet, which includes other assets in addition to the SOMA, to $2.9 trillion.
This scenario assumes that the proceeds from principal repayments from Treasury
securities and agency securities continue to be reinvested in Treasury securities until the
March 2012 Federal Open Market Committee (FOMC) meeting at which point the
balance sheet begins to contract. In June 2013, roughly six months after the assumed first
increase in the target federal funds rate, the Committee begins to sell its remaining
holdings of agency MBS and agency debt securities at a pace that reduces the amount of
these securities in the portfolio to zero in five years—that is, by the end of the second
Page 22 of 42
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June 16, 2011
quarter of 2018.3, 4 This action along with the cessation of reinvestments results in the
normalization of the size of the balance sheet by November 2015.5
After reserve balances have reached the assumed $25 billion floor and the $5
billion in the U.S. Treasury’s Supplementary Financing Account (SFA) has been drained,
the balance sheet begins to expand, with increases in holdings of Treasury securities
primarily matching the growth of Federal Reserve capital and notes in circulation.6 The
balance sheet reaches a size of nearly $2 trillion by the end of 2020.
Under Alternative C, the FOMC is assumed to cease reinvesting principal
payments on securities held in the SOMA portfolio in July 2011, about eight months
commence in November of 2012, seven months earlier than assumed in Alternatives A
and B. The size of the balance sheet peaks at just under $2.9 trillion when the purchase
program ends and immediately begins to decline as both Treasury and agency securities
mature or prepay.
Compared with the April Tealbook baseline projection, total assets in Alternatives
A and B are roughly at the same level until December 2011 when security redemptions
were assumed to begin last round. 7 In the current Tealbook, security redemptions do not
begin until March 2012. As a result, the current projection for total assets lies above the
projection in the April Tealbook from December 2011 until the fourth quarter of 2015.
From this point onward, the size of the balance sheet is normalized, and the path for total
assets aligns with the path in the April Tealbook. On the liability side of the balance
sheet, the forecasted path for reserve balances is higher than in the previous Tealbook
3
Given the maturity schedule for agency debt securities, the volume of sales necessary to reduce
holdings of these securities to zero over the five year period is minimal.
4
The tools to drain reserve balances (reverse repurchase agreements and the Term Deposit Facility) are
not used in any of the scenarios presented. Use of these tools would result in a shift in the composition of
Federal Reserve liabilities—a decline in reserve balances and a corresponding increase in term reverse
repurchase agreements or term deposits—but would not produce an overall change in the size of the
balance sheet.
5
The assumed timing of the normalization of the size of the balance sheet depends importantly on the
assumed level of reserve balances that is consistent with the conduct of monetary policy. A higher level of
reserve balances would, all else equal, lead to an earlier normalization of the size of the balance sheet.
6
The SFA is held constant at $5 billion until it is drained to zero to maintain the $25 billion floor on
reserve balances.
7
In the near term, the lower interest rate path in this Tealbook implies more mortgage-backed
securities (MBS) prepayments, which reduces MBS holdings. Since the Desk is reinvesting the
prepayments into Treasury securities, this implies a larger share of Treasury securities holdings than in the
last Tealbook but no change to the size of total securities holdings.
Page 23 of 42
Alternatives
earlier than assumed in Alternatives A and B. Similarly, sales of agency securities
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June 16, 2011
until the fourth quarter of 2015 when reserve balances fall to $25 billion. The change in
the forecast for reserve balances reflects a downward revision to the projected SFA
balance. Given the large degree of uncertainty over Congressional willingness to
increase the debt ceiling by a significant amount, the SFA balance is assumed to remain
at its current level of $5 billion rather than return to $200 billion by September 2011 as
was assumed in the last Tealbook. If the Congress does raise the debt ceiling
significantly and if the Treasury increases the funds in the SFA, reserve balances would
be reduced dollar for dollar.
After expanding in 2011, on net, the monetary base is projected to contract
through 2015 in Alternatives A, B, and C, reflecting the downward trend in reserve
Alternatives
balances associated with the decline in Federal Reserve assets.
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June 16, 2011
Growth Rates for the Monetary Base
Alternatives A
Memo : April
Alternative C
and B
Tealbook
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
-2.4
-10.1
-9.8
3.2
16.8
23.3
57.6
97.8
74.4
42.1
39.6
31.1
5.5
-14.4
-7.6
7.6
7.4
Percent, annual rate
Monthly
-2.4
-10.1
-9.8
3.2
16.8
23.3
57.6
97.8
74.4
42.1
39.5
21.7
-9.9
-27.5
-20.2
-5.8
-6.5
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
-6.4
-3.2
36.8
69.8
23.6
-2.7
5.6
-11.5
Quarterly
-6.4
-3.2
36.8
69.8
15.3
-15.8
-6.4
-13.2
Annual - Q4 to Q4
2009
52.5
52.5
2010
0.9
0.9
2011
34.9
27.9
2012
-8.7
-12.2
2013
-16.3
-18.4
2014
-16.5
-17.6
2015
-21.0
-10.3
Note: Not seasonally adjusted.
Page 25 of 42
-2.4
-10.1
-9.8
3.2
16.8
23.3
57.6
99.1
81.5
56.6
31.7
12.8
-20.8
-49.4
-19.4
5.9
-4.1
-6.4
-3.2
37.0
75.4
7.1
-18.9
-6.0
-12.7
52.5
0.9
25.9
-11.9
-18.0
-20.3
-7.3
Alternatives
Date
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June 16, 2011
DEBT, BANK CREDIT, AND MONEY FORECASTS
Domestic nonfinancial sector debt is projected to increase at an annual rate of 3½
percent in the second quarter of this year, reflecting a rapid expansion in federal
government debt and a tepid rise in private nonfinancial debt. Although federal
government debt reached its statutory limit in May, the staff forecast assumes that the
limit will be raised in a timely manner before the Treasury’s “extraordinary measures”
are exhausted in early August (see box “Debt Subject to Limit” in Tealbook Book A).
Domestic nonfinancial debt is expected to accelerate over the remainder of this year and
next, on balance, to an average annual pace of about 5¼ percent, largely reflecting a
gradual pickup in the growth of private nonfinancial debt. Despite low mortgage rates,
Alternatives
home mortgage debt is projected to contract further in the second half of 2011 and to be
about flat in 2012; housing demand is expected to remain weak amid elevated
unemployment and tight mortgage credit conditions. Consumer credit is projected to post
a small gain this quarter and then gradually accelerate in coming quarters in response to
increases in the growth of spending on consumer durables. Nonfinancial business debt is
expected to rise at a moderate pace over the forecast period, reflecting the ongoing
expansion of capital expenditures.
We expect commercial bank credit to be about flat in the current quarter, as a
continued decline in loans roughly offsets a rise in securities holdings. Over the
remainder of the year, the increase in bank credit is expected to be constrained by
ongoing balance sheet pressures, still-stringent lending standards, and a lack of demand
from high-quality borrowers for certain types of loans. By 2012, however, we expect
these factors to gradually abate and bank credit to accelerate. Commercial and industrial
loans are projected to increase steadily through the forecast period as a result of a
continued rise in investment outlays and a further gradual easing of banks’ lending
standards and terms. However, commercial real estate loans are expected to contract
throughout the same period, reflecting persistently weak market fundamentals and
elevated charge-offs, but the rate of decline is anticipated to lessen over time. Turning to
household lending, residential real estate loans on banks’ books are projected to decline
through 2011 but edge up slightly during 2012, with gains driven in part by lower chargeoffs. Consumer loans are expected to increase modestly over the second half of 2011 and
2012, supported by a pickup in consumer spending and reduced losses in credit card
portfolios. Banks’ securities holdings are forecasted to expand at a moderate pace
through 2012.
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After growing at about the same pace as nominal GDP in the first half of this
year, we project M2 to decelerate over the forecast period, recording growth of 3½
percent for 2011 as a whole and 2½ percent in 2012. The forecast assumes that
households will slowly shift their portfolios toward higher-yielding investments outside
of M2 in the second half of this year and well into next year as the economic recovery
gains strength. Thereafter, with households’ portfolio reallocation completed in the third
quarter of next year, M2 is expected to expand in line with projections based on its
historical relationship with nominal income and opportunity costs. Within M2, currency
is expected to expand at around its long-run average rate over the forecast period. The
runoff in small time deposits and retail money market mutual funds is expected to
significantly from the robust pace seen since 2009. We have assumed that the repeal of
Regulation Q, which is scheduled to be effective next month and will allow depository
institutions to pay interest on demand deposits, will have a minimal effect on liquid
deposits, and hence the level of M2, over the forecast period. In the current environment,
interest-bearing demand deposits would presumably have rates that are essentially zero,
and with unlimited insurance on noninterest-bearing demand deposits, there appears to be
little incentive for banks or their customers to make substantial changes in their
behavior.8
8
On December 31, 2010, the Federal Deposit Insurance Company (FDIC), pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act, began to fully insure noninterest-bearing transaction
accounts, including demand deposits, at all FDIC-insured institutions for a two-year period ending
December 31, 2012. Other deposit accounts, such as interest-bearing transaction accounts, continue to be
subject to the regular $250,000 insurance limit.
Page 27 of 42
Alternatives
diminish through 2012, while the increase in liquid deposits is projected to slow
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June 16, 2011
Alternatives
M2 Growth Rates
(Percent, seasonally adjusted annual rate)
Monthly Growth Rates
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Tealbook Forecast*
4.0
2.7
7.4
2.9
4.5
7.4
5.7
2.4
1.6
1.4
1.2
1.1
1.0
Quarterly Growth Rates
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
5.6
4.3
5.2
3.4
1.2
Annual Growth Rates
2009
2010
2011
2012
5.0
3.2
3.6
2.5
* This forecast is consistent with nominal GDP and interest rates in the
Tealbook forecast. Actual data through May 2011; projections thereafter.
Page 28 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
DIRECTIVE
The April directive appears below. Drafts for a June directive corresponding to
each of the three policy alternatives appear on subsequent pages. The directives for
Alternatives A and B would instruct the Desk to complete purchases of longer-term
Treasury securities to implement the $600 billion increase in the SOMA’s securities
holdings by the end of June 2011 while also continuing the current policy of reinvesting
principal payments on SOMA securities. These directives also instruct the Desk to keep
the total face value of domestic securities holdings after June 2011 at the approximate
level attained by the purchase program. The directive for Alternative C likewise calls for
the completion of the previously announced purchase program, but then instructs the
Alternatives
Desk to cease all reinvestment of principal payments from agency and Treasury securities
from July 2011 onward.
April 2011 FOMC Directive
The Federal Open Market Committee seeks monetary and financial conditions
that will foster price stability and promote sustainable growth in output. To further its
long-run objectives, the Committee seeks conditions in reserve markets consistent with
federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to
execute purchases of longer-term Treasury securities in order to increase the total face
value of domestic securities held in the System Open Market Account to approximately
$2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest
principal payments from agency debt and agency mortgage-backed securities in longerterm Treasury securities. The System Open Market Account Manager and the Secretary
will keep the Committee informed of ongoing developments regarding the System’s
balance sheet that could affect the attainment over time of the Committee’s objectives of
maximum employment and price stability.
Page 29 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
June 2011 FOMC Directive — Alternative A
The Federal Open Market Committee seeks monetary and financial conditions
that will foster price stability and promote sustainable growth in output. To further its
long-run objectives, the Committee seeks conditions in reserve markets consistent with
federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to
execute complete purchases of $600 billion of longer-term Treasury securities in order to
increase the total face value of domestic securities held in the System Open Market
Account to approximately $2.6 trillion by the end of June 2011 this month. The
Committee also directs the Desk to maintain its existing policy of reinvesting principal
payments from agency debt and agency mortgage-backed on all domestic securities in
Alternatives
the System Open Market Account in longer-term Treasury securities in order to
maintain the total face value of domestic securities at approximately $2.6 trillion.
The System Open Market Account Manager and the Secretary will keep the Committee
informed of ongoing developments regarding the System’s balance sheet that could affect
the attainment over time of the Committee’s objectives of maximum employment and
price stability.
Page 30 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
June 2011 FOMC Directive — Alternative B
The Federal Open Market Committee seeks monetary and financial conditions
that will foster price stability and promote sustainable growth in output. To further its
long-run objectives, the Committee seeks conditions in reserve markets consistent with
federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to
execute complete purchases of $600 billion of longer-term Treasury securities in order to
increase the total face value of domestic securities held in the System Open Market
Account to approximately $2.6 trillion by the end of June 2011 this month. The
Committee also directs the Desk to maintain its existing policy of reinvesting principal
payments from agency debt and agency mortgage-backed on all domestic securities in
maintain the total face value of domestic securities at approximately $2.6 trillion.
The System Open Market Account Manager and the Secretary will keep the Committee
informed of ongoing developments regarding the System’s balance sheet that could affect
the attainment over time of the Committee’s objectives of maximum employment and
price stability.
Page 31 of 42
Alternatives
the System Open Market Account in longer-term Treasury securities in order to
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
June 2011 FOMC Directive — Alternative C
The Federal Open Market Committee seeks monetary and financial conditions
that will foster price stability and promote sustainable growth in output. To further its
long-run objectives, the Committee seeks conditions in reserve markets consistent with
federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to
execute complete purchases of $600 billion of longer-term Treasury securities in order to
increase the total face value of domestic securities held in the System Open Market
Account to approximately $2.6 trillion by the end of June 2011 this month. The
Committee also directs the Desk to cease all reinvestment of principal payments from
agency debt and agency mortgage-backed securities in longer-term Treasury on domestic
Alternatives
securities in the System Open Market Account from the beginning of July 2011. The
System Open Market Account Manager and the Secretary will keep the Committee
informed of ongoing developments regarding the System’s balance sheet that could affect
the attainment over time of the Committee’s objectives of maximum employment and
price stability.
Page 32 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
Explanatory Notes
A. Measures of the Equilibrium Real Rate
The concepts of the equilibrium real rate reported in the exhibit “Equilibrium Real
Federal Funds Rate,” are defined as the level of the real federal funds rate that is consistent with
output at potential within a specified time horizon. The short-run equilibrium rate is defined as
the rate that would close the output gap in twelve quarters given the corresponding model’s
projection of the economy. The medium-run concept is the value of the real federal funds rate
projected to prevail in seven years, under the assumption that monetary policy acts to bring actual
and potential output into line in the short run and then keeps them equal thereafter.
Measure
Description
The measure of the equilibrium real rate in the single-equation model is
Single-equation based on an estimated aggregate-demand relationship between the current
value of the output gap and its lagged values as well as the lagged values of
Model
the real federal funds rate.
The small-scale model of the economy consists of equations for six
variables: the output gap, the equity premium, the federal budget surplus,
the trend growth rate of output, the real bond yield, and the real federal
funds rate.
EDO Model
Estimates of the equilibrium real rate using EDO—an estimated dynamicstochastic-general-equilibrium (DSGE) model of the U.S. economy—
depend on data for major spending categories, prices and wages, and the
federal funds rate as well as the model’s structure and estimate of the output
gap.
FRB/US Model
Estimates of the equilibrium real rate using FRB/US—the staff’s large-scale
econometric model of the U.S. economy—depend on a very broad array of
economic factors, some of which take the form of projected values of the
model’s exogenous variables.
Tealbookconsistent
Two measures are presented based on the FRB/US and the EDO models.
Both models are matched to the extended Tealbook forecast. Model
simulations determine the value of the real federal funds rate that closes the
output gap conditional on the extended baseline.
Page 33 of 42
Explanatory Notes
Small
Structural
Model
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
Measure
TIPS-based
Factor Model
June 16, 2011
Description
Yields on TIPS (Treasury Inflation-Protected Securities) reflect investors’
expectations of the future path of real interest rates. The TIPS-based
measure of the equilibrium real rate is constructed using the seven-yearahead instantaneous real forward rate derived from TIPS yields as of the
Tealbook publication date. This forward rate is adjusted to remove
estimates of the term and liquidity premiums based on a three-factor,
arbitrage-free term-structure model applied to TIPS yields, nominal yields,
and inflation.
The actual real federal funds rate is constructed as the difference between the federal
funds rate and a four-quarter change in the core PCE price index. If the upcoming FOMC
meeting falls early in the quarter, the four-quarter change in core PCE prices from the preceding
quarter is used to measure inflation. The federal funds rate is specified as the target federal funds
rate on the Tealbook publication date.
Explanatory Notes
Estimates of the real federal funds rate depend on the proxies for expected inflation used.
The table below shows estimates of the real federal funds rates using alternative proxies: lagged
core PCE inflation, which is used to construct the actual real federal funds rate shown in the table
that displays the r* measures; lagged four-quarter headline PCE inflation; and projected fourquarter headline PCE inflation beginning with the next quarter. The table also displays the
Tealbook-consistent FRB/US-based measure of the short-run equilibrium real rate and the
average actual real federal funds rate over the next twelve quarters using each of the different
proxies for expected inflation.
Proxy used for
expected inflation
Lagged core inflation
Lagged headline
inflation
Projected headline
inflation
Actual real federal
funds rate
(current value)
Tealbook-consistent
FRB/US-based
measure of the
equilibrium real funds
rate (current value)
Average actual
real funds rate
(twelve-quarter
average)
-1
-2.2
-0.8
-2.2
-2.4
-1
-1.2
-2.2
-0.8
Page 34 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
B. Analysis of Policy Paths and Confidence Intervals
RULE SPECIFICATIONS
For the following rules, ݅௧ denotes the federal funds rate for quarter t, while the righthand-side variables include the staff’s projection of trailing four-quarter core PCE inflation (ߨ௧ ),
inflation two and three quarters ahead (ߨ௧ାଶ|௧ and ߨ௧ାଷ|௧ ), the output gap in the current period and
כ
), and the three-quarter-ahead forecast of annual
one quarter ahead ( ݕ௧ െ ݕ௧ כand ݕ௧ାଵ|௧ െ ݕ௧ାଵ|௧
כ
average GDP growth relative to potential (Δସ ݕ௧ାଷ|௧ െ Δସ ݕ௧ାଷ|௧
), and π* denotes an assumed value
of policymakers’ long-run inflation objective. The outcome-based and forecast-based rules were
estimated using real-time data over the sample 1988:1-2006:4; each specification was chosen
using the Bayesian information criterion. Each rule incorporates a 75 basis point shift in the
intercept, specified as a sequence of 25 basis point increments during the first three quarters of
1998. The first two simple rules were proposed by Taylor (1993, 1999). The prescriptions of the
first-difference rule do not depend on assumptions regarding r* or the level of the output gap; see
Orphanides (2003).
Forecast-based rule
݅௧ ൌ 1.20݅௧ିଵ െ 0.39݅௧ିଶ 0.19ሾ1.17 1.73ߨ௧
כሻሿ
3.66ሺݕ௧ െ ݕ௧ כሻ െ 2.72ሺݕ௧ିଵ െ ݕ௧ିଵ
݅௧ ൌ 1.18݅௧ିଵ െ 0.38݅௧ିଶ 0.20ሾ0.98 1.72ߨ௧ାଶ|௧
כ
כሻሿ
൯ െ 1.37ሺݕ௧ିଵ െ ݕ௧ିଵ
2.29൫ݕ௧ାଵ|௧ െ ݕ௧ାଵ|௧
Taylor (1993) rule
݅௧ ൌ 2 ߨ௧ 0.5ሺߨ௧ െ ߨ כሻ 0.5ሺݕ௧ െ ݕ௧ כሻ
Taylor (1999) rule
݅௧ ൌ 2 ߨ௧ 0.5ሺߨ௧ െ ߨ כሻ ሺݕ௧ െ ݕ௧ כሻ
First-difference rule
כ
ሻ
݅௧ ൌ ݅௧ିଵ 0.5൫ߨ௧ାଷ|௧ െ ߨ כ൯ 0.5ሺ߂ସ ݕ௧ାଷ|௧ െ ߂ସ ݕ௧ାଷ|௧
FRB/US MODEL SIMULATIONS
Prescriptions from the two empirical rules are computed using dynamic simulations of
the FRB/US model, implemented as though the rule were followed starting at this FOMC
meeting. The dotted line labeled “Previous Tealbook” is based on the current specification of the
policy rule, applied to the previous Tealbook projection. Confidence intervals are based on
stochastic simulations of the FRB/US model with shocks drawn from the estimated residuals over
1969-2008.
INFORMATION FROM FINANCIAL MARKETS
The expected funds rate path is based on Eurodollar quotes and implied three-month
forward rates from swaps, and the confidence intervals for this path are constructed using prices
of interest rate caps.
Page 35 of 42
Explanatory Notes
Outcome-based rule
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
NEAR-TERM PRESCRIPTIONS OF SIMPLE POLICY RULES
These prescriptions are calculated using Tealbook projections for inflation and the output
gap. The first-difference rule, the estimated outcome-based rule, and the estimated forecast-based
rule include the lagged policy rate as a right-hand-side variable. When the Tealbook is published
early in the quarter, the lines denoted “Previous Tealbook” report rule prescriptions based on the
previous Tealbook’s staff outlook, jumping off from the actual value of the lagged funds rate in
the previous quarter. When the Tealbook is published late in the quarter, the lines denoted
“Previous Tealbook Outlook” report rule prescriptions based on the previous Tealbook’s staff
outlook, but jumping off from the average value for the policy rate thus far this quarter
REFERENCES
Taylor, John B. (1993). “Discretion versus Policy Rules in Practice,” Carnegie-Rochester
Conference Series on Public Policy, vol. 39 (December), pp. 195214.
————— (1999). “A Historical Analysis of Monetary Policy Rules,” in John B.
Taylor, ed., Monetary Policy Rules. University of Chicago Press, pp. 319341.
Explanatory Notes
Orphanides, Athanasios (2003). “Historical Monetary Policy Analysis and the Taylor
Rule,” Journal of Monetary Economics, vol. 50 (July), pp. 9831022.
Page 36 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
C. Long-Run Projections of the Balance Sheet and Monetary Base
This explanatory note presents the assumptions underlying the projections provided in the
section entitled “Long-Run Projections of the Balance Sheet and Monetary Base,” as well as
projections for each major component of the balance sheet.
GENERAL ASSUMPTIONS
The balance sheet projections are constructed on a monthly frequency from June 2011 to
December 2020. The few balance sheet items that are not discussed below are assumed to be
constant over the projection period at the level observed on May 31, 2011. The projections for all
major asset and liability categories under each scenario are summarized in the tables that follow
the bullet points.
The Tealbook projection assumes that the federal funds rate begins to increase in the
fourth quarter of 2012, one quarter later than in the April Tealbook. The balance sheet
projections assume that no use of short-term draining tools is necessary to achieve the projected
path for the federal funds rate.1
ASSETS
Treasury Securities, Agency MBS, and Agency Debt Securities
The assumptions under Alternatives A and B are
o
o
o
o
Purchases of $600 billion of longer-term Treasury securities are completed in June
2011.
Principal payments from Treasury securities continue to be reinvested until March
2012.
Principal payments from agency MBS and agency debt securities are reinvested in
longer-term Treasury securities until March 2012.2
All purchases of Treasury securities are executed using a maturity distribution similar
to that currently used by the Desk.3
1
If term deposits or reverse repurchase agreements were used to drain reserves prior to raising the
federal funds rate, the composition of liabilities would change: Reserve balances would fall as term
deposits and reverse repurchase agreements rose. Presumably these draining tools would be wound down
as the balance sheet returned to its steady state growth path, so that the projected paths for Treasury
securities presented in the Tealbook remain valid.
2
Projected prepayments of agency MBS reflect interest rates as of June 14, 2011.
3
Because current and expected near-term interest rates are below the average coupon rate on
outstanding Treasury securities, the market value at which these securities are purchased will generally
exceed their face value. Reserve balances will increase by the market value, whereas securities holdings as
reported in the H.4.1statistical release will increase by the face value; the implied premiums are recorded as
“other assets.” These premiums decline gradually from $77 billion at the end of 2011 (2.9 percent of
SOMA assets) to $16 billion at the end 2020 (0.9 percent of SOMA assets).
Page 37 of 42
Explanatory Notes
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
o
o
Explanatory Notes
o
June 16, 2011
Beginning after the March 2012 Federal Open Market Committee (FOMC) meeting,
the Committee is assumed to cease reinvesting principal payments on securities held
in the SOMA profolio.
The Federal Reserve begins to sell agency MBS and agency debt securities in June
2013, roughly six months after the assumed date of the first increase in the target
federal funds rate. Holdings of agency securities are reduced over five years and
reach zero by the end of the second quarter of 2018.
For agency MBS, the rate of prepayment is based on estimates of housing market
factors from one of the program’s investment managers and interest rate projections
from the Tealbook. The projected rate of prepayment is sensitive to these underlying
assumptions.
Under Alternative C, purchases of $600 billion of longer-term Treasury securities are
completed in June 2011, as is the case in Alternatives A and B. Beginning in July 2011,
however, the FOMC is assumed to cease reinvesting principal payments on securities
held in the SOMA profolio. Sales of agency securities commence in November 2012,
seven months before sales begin under Alternatives A and B.
In the scenarios, a minimum level of $25 billion is set for reserve balances. To maintain
reserve balances at this level, first the U.S. Treasury’s Supplementary Financing Account
(SFA) balance is reduced to zero. After the SFA balance is exhausted, Treasury bills are
purchased. Purchases of bills continue until these securities comprise one-third of the
Federal Reserve’s total Treasury security holdings–about the average level in the period
prior to the crisis. Once this level is reached, the Federal Reserve buys notes and bonds
in addition to bills to maintain an approximate composition of the portfolio of one-third
bills and two-thirds coupon securities.
Liquidity Programs and Credit Facilities
Loans through the Term Asset-Backed Securities Loan Facility (TALF) peaked at $48
billion in December 2009. Credit extended through this facility declines to zero by the
end of 2014, reflecting loan maturities and prepayments.
The assets held by TALF LLC increase to $1.0 billion by the end of 2011 and remain at
this level through 2014 before declining to zero the following year. Assets held by TALF
LLC consist of investments of commitment fees collected by the LLC and the U.S.
Treasury’s initial funding. In this projection, the LLC does not purchase any assetbacked securities received by the Federal Reserve Bank of New York in connection with
a decision of a borrower to not repay a TALF loan.
The assets held by Maiden Lane LLC and Maiden Lane III LLC decline gradually over
time. The assets of Maiden Lane II LLC fall to zero by April 2012 as securities are
auctioned off.
Page 38 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
Federal Reserve notes in circulation grow in line with the staff forecast for money stock
currency through the last quarter of 2012. Afterwards, Federal Reserve notes in
circulation grow at the same rate as nominal GDP, as projected in the extended Tealbook
projection.
The U.S. Treasury’s General Account (TGA) follows the staff forecast through
September 2011.4 Then, the TGA slowly drops back to its historical target level of $5
billion by March 2012 as it is assumed that the Treasury will implement a new cash
management system and invest funds in excess of $5 billion. The TGA remains constant
at $5 billion over the remainder of the forecast period.
Given the large degree of uncertainty over the willingness of Congress to increase the
debt ceiling by a significant amount, we maintain the SFA balance at its current level of
$5 billion until it is drained in November 2015 to maintain the $25 billion reserve balance
floor.
Federal Reserve capital grows 15 percent per year, in line with the average rate of the
past ten years.
In general, increases in the level of Federal Reserve assets generate higher levels of
reserve balances. Increases in the levels of liability items, such as Federal Reserve notes
in circulation or the Treasury’s general account, or increases in the level of Reserve Bank
capital, drain reserve balances. When increases in these liability or capital items would
otherwise cause reserve balances to fall below $25 billion, purchases of Treasury
securities are assumed in order to maintain that level of reserve balances.
In the event that a Federal Reserve Bank’s earnings fall short of the amount necessary to
cover operating costs, pay dividends, and equate surplus to capital paid-in, a deferred
asset will be recorded. This deferred asset is recorded in lieu of reducing the Reserve
Bank’s capital and is found on the liability side of the balance sheet as “Interest on
Federal Reserve notes due to U.S. Treasury.” This liability takes on a positive value
when weekly cumulative earnings have not yet been distributed to the Treasury, while
this liability takes on a negative value when earnings fall short of the expenses listed
above. In the projections, Systemwide earnings are always sufficient to cover these
expenses and this line item is set to zero.
4
The staff forecast for end-of-month U.S. Treasury operating cash balances includes forecasts of both
the TGA and balances associated with the U.S. Treasury’s Tax and Loan program. Because balances
associated with the Tax and Loan program are only $2 billion, for the time being, this forecast is a good
proxy for the level of TGA balances.
Page 39 of 42
Explanatory Notes
LIABILITIES AND CAPITAL
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
Federal Reserve Balance Sheet
End-of-Year Projections -- Alternatives A & B
Billions of dollars
May 31, 2011
2012
2014
2016
2018
2020
2,791
2,500
1,794
1,587
1,758
1,952
0
0
0
0
0
0
Primary, secondary, and seasonal credit
0
0
0
0
0
0
Central bank liquidity swaps
0
0
0
0
0
0
14
4
0
0
0
0
14
4
0
0
0
0
64
36
26
18
9
4
0
0
0
0
0
0
64
36
26
18
9
4
2,567
2,314
1,644
1,461
1,649
1,853
1,530
1,540
1,147
1,255
1,649
1,853
Agency debt securities
119
77
39
16
0
0
Agency mortgage-backed securities
918
697
458
190
0
0
Special drawing rights certificate account
5
7
7
7
7
7
Net portfolio holdings of TALF LLC
1
1
1
0
0
0
145
144
123
109
100
95
2,738
2,430
1,701
1,465
1,596
1,737
983
1,083
1,223
1,356
1,488
1,630
60
60
60
60
60
60
1,670
1,267
400
31
31
31
1,552
1,256
389
25
25
25
113
5
5
5
5
5
U.S. Treasury, Supplementary Financing Account
5
5
5
0
0
0
Other balances
1
1
1
1
1
1
3
0
0
0
0
0
53
70
93
123
162
215
Total assets
Selected assets
Liquidity programs for financial firms
Lending through other credit facilities
Term Asset-Backed Securities Loan Facility (TALF)
Support for specific institutions
Credit extended to AIG
Net portfolio holdings of Maiden Lane LLC,
Maiden Lane II LLC, and Maiden Lane III LLC
Securities held outright
Explanatory Notes
U.S. Treasury securities
Total other assets
Total liabilities
Selected liabilities
Federal Reserve notes in circulation
Reverse repurchase agreements
Deposits with Federal Reserve Banks
Reserve balances held by depository institutions
U.S. Treasury, General Account
Interest on Federal Reserve Notes due
to U.S. Treasury
Total capital
Source: Federal Reserve H.4.1 statistical releases and staff calculations.
Note: Components may not sum to totals due to rounding.
Page 40 of 42
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
June 16, 2011
Federal Reserve Balance Sheet
End-of-Year Projections -- Alternative C
Billions of dollars
May 31, 2011
2012
2014
2016
2018
2020
2,791
2,286
1,590
1,587
1,758
1,952
0
0
0
0
0
0
Primary, secondary, and seasonal credit
0
0
0
0
0
0
Central bank liquidity swaps
0
0
0
0
0
0
14
4
0
0
0
0
14
4
0
0
0
0
64
36
26
18
9
4
0
0
0
0
0
0
64
36
26
18
9
4
2,567
2,102
1,439
1,459
1,646
1,850
1,530
1,340
999
1,325
1,646
1,850
Agency debt securities
119
77
39
16
0
0
Agency mortgage-backed securities
918
686
402
118
0
0
Special drawing rights certificate account
5
7
7
7
7
7
Net portfolio holdings of TALF LLC
1
1
1
0
0
0
145
142
123
110
103
98
2,738
2,215
1,497
1,465
1,596
1,738
983
1,083
1,223
1,356
1,488
1,630
60
60
60
60
60
60
1,670
1,053
196
31
31
31
1,552
1,042
185
25
25
25
113
5
5
5
5
5
U.S. Treasury, Supplementary Financing Account
5
5
5
0
0
0
Other balances
1
1
1
1
1
1
3
0
0
0
0
0
53
70
93
123
162
215
Total assets
Liquidity programs for financial firms
Lending through other credit facilities
Term Asset-Backed Securities Loan Facility (TALF)
Support for specific institutions
Credit extended to AIG
Net portfolio holdings of Maiden Lane LLC,
Maiden Lane II LLC, and Maiden Lane III LLC
Securities held outright
U.S. Treasury securities
Total other assets
Total liabilities
Selected liabilities
Federal Reserve notes in circulation
Reverse repurchase agreements
Deposits with Federal Reserve Banks
Reserve balances held by depository institutions
U.S. Treasury, General Account
Interest on Federal Reserve Notes due
to U.S. Treasury
Total capital
Source: Federal Reserve H.4.1 statistical releases and staff calculations.
Note: Components may not sum to totals due to rounding.
Page 41 of 42
Explanatory Notes
Selected assets
Authorized for Public Release
Class I FOMC - Restricted Controlled (FR)
Explanatory Notes
(This page is intentionally blank.)
Page 42 of 42
June 16, 2011
Cite this document
APA
Federal Reserve (2011, June 21). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20110622_part2
BibTeX
@misc{wtfs_greenbook_20110622_part2,
author = {Federal Reserve},
title = {Greenbook/Tealbook},
year = {2011},
month = {Jun},
howpublished = {Greenbooks, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/greenbook_20110622_part2},
note = {Retrieved via When the Fed Speaks corpus}
}