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Appendix 1: Materials used by Mr. Potter

April 30-May 1, 2013 Authorized for Public Release 211 of 240

Class II FOMC – Restricted (FR)

Material for

FOMC Presentation: Financial Market Developments and Desk Operations

Simon Potter April 30, 2013


Class II FOMC – Restricted (FR) Exhibit 1

35 30 25 20 15 10 5 0

South Korean Won

Australian Dollar

U.S. Dollar

Chinese Renminbi

Euro

Thai Baht

Percent

Since Early Election Announcement (11/13/12)Since BoJ Meeting (04/03/13) Yen

Depreciation

(2) Japanese Yen Exchange Rate Changes

Source: Bloomberg

0

5

10

15

20

25

30

35

Fed* BoJ** ECB*** BoE****

Percent End-2012End-2014 (Projected)

(3) Central Bank Securities Portfolios in Excessof Currency as Percent of GDP

*Based on median projection for purchases from Survey of Primary Dealers.**Assumes new policy continues through 2014.***Assumes no new purchases and no use of OMT.****Assumes Asset Purchase Facility remains constant at £375 billion. Source: Central banks, IMF

0.0

0.5

1.0

1.5

2.0

2.5

01/01/13 02/01/13 03/01/13 04/01/13

BPS

(6) Ten-Year Japanese Sovereign YieldIntraday Volatility*

*10-day moving average of daily standard deviation of 10-year JGB yield,sampled every 5 minutes.

Source: Reuters

BoJ

-60

-40

-20

0

20

40

60

80

85

90

95

100

105

110

115

03/01/12 07/01/12 11/01/12 03/01/13

Index Level Indexed to 03/01/12

G10 Equity Indices* (LHS)G10 Economic Surprise Index (RHS)

(1) Economic Surprises and Equity Prices

*Index of benchmark equity indices for G10 countries, weighted by GDP.Source: Bloomberg, IMF, Citigroup

FOMC Draghi Speech

Japanese Election

Announced

Purchase Schedule Changed

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

03/01/12 07/01/12 11/01/12 03/01/13

Percent Percent

10-Year (LHS)30-Year (RHS)

(5) Japanese Sovereign Yields

Source: Bloomberg

Kuroda Nomination Announced

Japanese Election

Announced

BoJ

02468

1012141618

Fed* BoJ** ECB*** BoE****

Years WAM of Total Sovereign Debt MarketWAM of Central Bank Portfolio: End-2012WAM of Central Bank Portfolio: End-2014 (Proj.)WAM of Current Central Bank Purchases

(4) Sovereign Debt Weighted Average Maturity

*Based on median projection for purchases from Survey of Primary Dealers.**Assumes new policy continues through 2014.***Assumes no new purchases and no use of OMT.****Assumes Asset Purchase Facility remains constant at £375 billion. Source: Central banks, country treasuries, OECD


https://www.federalreserve.gov/monetarypolicy/files/FOMC20130501meeting.pdf

Exhibit 2 Class II FOMC – Restricted (FR)

100

200

300

400

500

600

700

03/01/12 07/01/12 11/01/12 03/01/13

BPS

SpainItaly

(12) Euro Area Sovereign Yield Spreads*

*10-year spreads to Germany. Outright levels of 10-year yields are 4.28% and 4.06% for Spain and Italy, respectively, compared to euro-era lows of 3.01% and 3.22% on 09/21/05. Source: Bloomberg

Draghi Speech

OMT Details Announced

Italian Election

Cyprus Plan Announced

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

01/01/11 01/01/12 01/01/13 01/01/14

Percent Main Refinancing RateEONIAMarket-Implied EONIA Path*Deposit Rate

Pre-February ECB (02/06/13)

Current

(11) ECB Policy Rates

*Risk-neutral projection based on forward EONIA swaps. Source: ECB, Barclays

2.4

2.5

2.6

2.7

2.8

2.9

3.0

3.1

80

90

100

110

120

09/01/12 11/01/12 01/01/13 03/01/13

Percent Indexed to 09/01/12

Front-Month Brent Crude (LHS)Spot Gold (LHS)5-Year, 5-Year BEI (RHS)

(10) Commodity Prices and Breakeven Inflation

Source: Bloomberg, Federal Reserve Board of Governors

Mar. FOMC

Sept. FOMC

-60

-50

-40

-30

-20

-10

0

10

SouthAfrica

Brazil Mexico France U.S. Germany Japan

BPS

Over Intermeeting PeriodWeek After BoJ Meeting

1.21%

Level

6.38%

9.63%

1.74%

1.66%

4.49%

(7) Changes and Levels of Ten-Year Sovereign Yields

Source: Bloomberg

0.59%

1

2

3

4

5

WeakerGrowth

GlobalPortfolio

Rebalancing

LowerInflation

AssetPurchase

Expectations

Safe HavenFlows

Importance AverageInterquartile Range

*Responses are expressed in terms of importance of each factor, where 1 is not important and 5 is very important. “Other” also received average 2.5 response. Source: Federal Reserve Bank of New York Survey

(8) Factors Contributing to Ten-Year Yield Decline Over Intermeeting Period*

-60

-50

-40

-30

-20

-10

0

Nominal Real Nominal Real

3 Years Ahead 9 Years Ahead

BPS

Pre-BoJ (03/19/13 - 04/03/13)Post-BoJ (04/03/13 - 04/26/13)

(9) Changes in One-Year Forward Rates Over Intermeeting Period

Source: Federal Reserve Board of Governors

1.00%

3.48%

-1.51%

0.63% Level



March ProjectionApril Projection

Exhibit 3 Class II FOMC – Restricted (FR)

-250

-200

-150

-100

-50

0

50

100

03/01/12 07/01/12 11/01/12 03/01/13

BPS 3.0% Front Month3.0% Next Month3.5% Front Month

Fails Charge

Sept. FOMC

Mar. FOMC

(17) Dollar Roll Implied Financing Rates*

*30-year FNMA dollar rolls. Front month is currently May-June roll; next month is June-July roll. Source: J.P. Morgan

0

10

20

30

40

50

60

0 2 4 6 8 10 12 14 16 18 20 22 24

Percent

WALA at Delivery (Months)

3.0%3.5%

(15) 30-Year MBS Delivered to SOMA by Weighted-Average Loan Age (WALA)

During New Program

Source: Federal Reserve Bank of New York

0

50

100

150

200

250

300

350

2.0 2.5 3.0 3.5 4.0

$ Billions

Coupon (Percent)

>2015-2010-155-100-5 Months

(16) 30-Year Fixed Rate TBA MBS Outstanding by WALA

(Excluding SOMA Holdings)

Source: FNMA, FHLMC, GNMA, KDS

0

20

40

60

80

100

120

140

Oct12

Dec12

Feb13

Apr13

Jun13

Aug13

Oct13

Dec13

Percent 30Y 3.5%30Y 3.0%30Y 2.5%All 15Y

Projected

(14) SOMA MBS Purchases as Percent of Monthly Gross MBS Issuance*

*Based on adjusted TBA-eligible issuance. Realized coupon distributions proportionate to share of purchases allocated to each coupon, with total bar height indicating SOMA purchases as percent of monthly gross issuance. Source: Federal Reserve Bank of New York, BlackRock, eMBS, KDS

0

5

10

15

20

25

30

35

0

5

10

15

20

Nov11

Jan12

Mar12

May12

Jul12

Sep12

Nov12

Jan13

Mar13

Percent $ Billions

Total (LHS)As Percent of Expected Settlements (RHS)

(18) Federal Reserve Dollar Roll Sales*

*By settlement month. As a comparison, dollar roll sales during LSAP 1 averaged approximately 20% of expected settlements; during new program, dollar roll sales have averaged approximately 8% of expected settlements. Source: Federal Reserve Bank of New York

0

1

2

3

4

5

11/01/11 04/01/12 09/01/12 02/01/13

Multiple Overall, Excl. 20- to 30-Year Sector*20- to 30-Year Sector**

New Program

(13) Coverage Ratios for Treasury Purchase Operations

*30-day moving average. **4-operation moving average. Source: Federal Reserve Bank of New York



Exhibit 4 (Last) Class II FOMC – Restricted (FR)

0

10

20

30

40

50

<2500 2500-3000

3000-3500

3500-4000

4000-4500

4500-5000

>5000

Percent

Par Amount ($ Billions)

October 2012 Survey*March SurveyApril Survey

(19) Probability Distribution of SOMA Portfolio Holdings

(Average End-2014 Forecasts)

*First survey with balance sheet PDF. Source: Federal Reserve Bank of New York Survey

(20) Expectations for Slowing and End of Asset Purchases

Source: Federal Reserve Bank of New York Survey

April March

Median End Date Q2 2014 Q1 2014

Dealers with Different End Date by Asset 5 3 Treasury Purchases End Last 2 3

MBS Purchases End Last 3 0

Median Slowing Start Date Q1 2014 Q4 2013

Dealers Expecting Slowing 19 19 Treasury Slowing 19 19

MBS Slowing 17 16

2,400

2,800

3,200

3,600

4,000

4,400

2011 2012 2013 2014 2015 2016 2017 2018

$ Billions

MEP & Reinvestments OnlyGrowing PortfolioStable PortfolioShrinking Portfolio

(21) SOMA Portfolio Holdings (Median Forecasts)

Source: Federal Reserve Bank of New York Survey, Bureau of Labor Statistics

Current

Tapering Start

Purchases End

Purchase End +1 Year

First Rate Hike

Sales Start (If Sales Occur)

Avg. NFP: 203K ΔU3: -0.6 ppts

PCE: 1.9%

U3: 7.1% PCE: 1.8% NFP Level: 138m Prev. NFP Peak: 138m

Avg. NFP: 183K

35% Probability of Sales Median: 12 Months After First Rate Hike

End-



Appendix 2: Materials used by Mr. Wascher


Class II FOMC – Restricted (FR)

Material for

Forecast Summary

William Wascher April 30, 2013


Forecast Summary

Confidence Intervals Based on FRB/US Stochastic Simulations

-2

0

2

4

6

8

10

-2

0

2

4

6

8

10Percent change, annual rate

Real GDP Forecasts from the Factor Model

2012 2013Note: The blue shaded area gives the 68% confidence interval for the4/24 model forecast.

4/24/134/29/13

-2

0

2

4

6

8

10

-2

0

2

4

6

8


Real GDP

2012 2013 2014 2015

70% confidence interval

April TBMarch TB

4

5

6

7

8

9

10

11

4

5

6

7

8

9

10

11Percent

Unemployment Rate

2012 2013 2014 2015*Effect of emergency unemployment compensation and state-federalextended benefit programs.

Natural Rate with EEB*


April TBMarch TBSeptember TB

0

50

100

150

200

250

300

0

50

100

150

200

250

300 Thousands

Change in Total Payroll Employment*

H1 H2 H1 H22013 2014

*Average monthly changes.

September TBMarch TBApril TB

-1

0

1

2

3

4

5

-1

0

1

2

3

4


PCE Prices

2012 2013 2014 2015


April TBMarch TB

-1

0

1

2

3

4

5

-1

0

1

2

3

4


PCE Prices Excluding Food and Energy

2012 2013 2014 2015


April TBMarch TB

April 30-May 1, 2013 Authorized for Public Release 219 of 240Class II FOMC - Restricted (FR)

Page 1 of 1


Appendix 3: Materials used by Mr. Clouse


Class I FOMC – Restricted Controlled (FR) Material for

FOMC Briefing on Monetary Policy Alternatives

Jim Clouse April 30, 2013


Monetary Policy Alternatives

2012 2015 2018 2021 2024 500

1500

2500

3500

4500

5500$ Billion

Alternative AAlternative BAlternative CMedian Dealer Projection

Total Projected SOMA Security Holdings

2012 2014 2016 2018 2020-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0Percent

Alternative AAlternative BAlternative C

Federal Funds Rate

2012 2014 2016 2018 20204.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0Percent


Unemployment Rate

2012 2014 2016 2018 20200.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0Four-quarter average Percent


PCE Inflation

1 of 13



MARCH FOMC STATEMENT

1. Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

3. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

5. To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations

2 of 13


continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

3 of 13


FOMC STATEMENT—APRIL-MAY 2013 ALTERNATIVE A

1. Information received since the Federal Open Market Committee met in January March suggests a return to moderate that economic growth following a pause late last year activity has been expanding at a moderate pace, on balance, in recent months. However, the pace of improvement in labor market conditions have shown signs of improvement in recent months but appears to have slowed, and the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive is restraining economic growth. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects judges that, with appropriate without further policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate might not be strong enough to generate a sustained improvement in labor market conditions and The Committee also anticipates that inflation over the medium term likely will would continue to run below its 2 percent objective. Moreover, the Committee continues to see downside risks to the economic outlook.

3. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional will increase the pace at which it purchases agency mortgage-backed securities at a pace of $40 to [ $45 ] billion per month and longer-term Treasury securities at a pace of $45 to [ $55 ] billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions will increase the Committee’s holdings of longer-term securities more quickly and should maintain put additional downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.


4 of 13


5. Moreover, to support continued faster progress toward maximum employment and price stability, the Committee expects that intends to maintain a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that now intends to retain this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6½ 5½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

5 of 13


FOMC STATEMENT—APRIL-MAY 2013 ALTERNATIVE B

1. Information received since the Federal Open Market Committee met in January March suggests a return to moderate that economic growth following a pause late last year activity has been expanding at a moderate pace. Labor market conditions have shown signs of some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive is restraining economic growth. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

3. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.


5. To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as

6 of 13


long as the unemployment rate remains above 6½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

7 of 13


FOMC STATEMENT—APRIL-MAY 2013 ALTERNATIVE C

1. Information received since the Federal Open Market Committee met in January March suggests confirms a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Although the unemployment rate remains elevated, it has declined further, and other indicators of labor market conditions have shown additional improvement in recent months. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become is somewhat more restrictive. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

2. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace in coming quarters and then pick up, and the unemployment rate will gradually continue to decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below close to its 2 percent objective. The Committee sees the risks to both economic growth and inflation as roughly balanced.

3. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, Based on the improvement in its outlook for the labor market since last September, the Committee decided to expand its asset holdings at a slower pace. In particular, the Committee decided to continue purchasing will purchase additional agency mortgage-backed securities at a pace of $40 [ $30 ] billion per month and longer-term Treasury securities at a pace of $45 [ $30 ] billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions will increase the Committee’s holdings of longer-term securities by $60 billion per month and should maintain sustain downward pressure on longer-term interest rates, support mortgage markets, and help to make keep broader financial conditions more accommodative.


8 of 13


5. To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

9 of 13


MARCH DIRECTIVE

Consistent with its statutory mandate, the Federal Open Market Committee seeks

monetary and financial conditions that will foster maximum employment and price

stability. In particular, 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

undertake open market operations as necessary to maintain such conditions. The Desk is

directed to continue purchasing longer-term Treasury securities at a pace of about $45

billion per month and to continue purchasing agency mortgage-backed securities at a

pace of about $40 billion per month. The Committee also directs the Desk to engage in

dollar roll and coupon swap transactions as necessary to facilitate settlement of the

Federal Reserve’s agency mortgage-backed securities transactions. The Committee

directs the Desk to maintain its policy of rolling over maturing Treasury securities into

new issues and its policy of reinvesting principal payments on all agency debt and agency

mortgage-backed securities in agency mortgage-backed 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.

10 of 13


DIRECTIVE FOR APRIL-MAY 2013 ALTERNATIVE A





undertake open market operations as necessary to maintain such conditions. Beginning

with the month of May, the Desk is directed to continue purchasing purchase longer-

term Treasury securities at a pace of about $45 $55 billion per month and continue

purchasing purchase agency mortgage-backed securities at a pace of about $40 $45

billion per month. The Committee also directs the Desk to engage in dollar roll and

coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s

agency mortgage-backed securities transactions. The Committee directs the Desk to

maintain its policy of rolling over maturing Treasury securities into new issues and its

policy of reinvesting principal payments on all agency debt and agency mortgage-backed

securities in agency mortgage-backed 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.

11 of 13


DIRECTIVE FOR APRIL-MAY 2013 ALTERNATIVE B





undertake open market operations as necessary to maintain such conditions. The Desk is

directed to continue purchasing longer-term Treasury securities at a pace of about $45

billion per month and to continue purchasing agency mortgage-backed securities at a

pace of about $40 billion per month. The Committee also directs the Desk to engage in

dollar roll and coupon swap transactions as necessary to facilitate settlement of the

Federal Reserve’s agency mortgage-backed securities transactions. The Committee

directs the Desk to maintain its policy of rolling over maturing Treasury securities into

new issues and its policy of reinvesting principal payments on all agency debt and agency

mortgage-backed securities in agency mortgage-backed 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.

12 of 13


DIRECTIVE FOR APRIL-MAY 2013 ALTERNATIVE C





undertake open market operations as necessary to maintain such conditions. Beginning

with the month of May, the Desk is directed to continue purchasing purchase longer-

term Treasury securities at a pace of about $45 $30 billion per month and to continue

purchasing purchase agency mortgage-backed securities at a pace of about $40 $30

billion per month. The Committee also directs the Desk to engage in dollar roll and

coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s

agency mortgage-backed securities transactions. The Committee directs the Desk to

maintain its policy of rolling over maturing Treasury securities into new issues and its

policy of reinvesting principal payments on all agency debt and agency mortgage-backed

securities in agency mortgage-backed 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.

13 of 13


Appendix 4: Materials used by Ms. Duke


Class I FOMC – Restricted Controlled (FR)

May 1, 2013

Page 1 of 1

Suggestions for Modifying the Draft FOMC Statement

1. Governor Duke suggests inserting the following language between the third and fourth sentences of paragraph 4:

The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.


Appendix 5: Materials used by Mr. Meyer


Class I FOMC – Restricted Controlled (FR) Material for Briefing on

Exit Strategy Principles

Stephen A. Meyer May 1, 2013


June 2011 Exit Strategy Principles

1. The Committee will determine the timing and pace of policy normalization to promote its

statutory mandate of maximum employment and price stability.

2. To begin the process of policy normalization, the Committee will likely first cease reinvesting some or all payments of principal on the securities holdings in the SOMA.

3. At the same time or sometime thereafter, the Committee will modify its forward guidance on the path of the federal funds rate and will initiate temporary reserve-draining operations aimed at supporting the implementation of increases in the federal funds rate when appropriate.

4. When economic conditions warrant, the Committee’s next step in the process of policy normalization will be to begin raising its target for the federal funds rate, and from that point on, changing the level or range of the federal funds rate target will be the primary means of adjusting the stance of monetary policy. During the normalization process, adjustments to the interest rate on excess reserves and to the level of reserves in the banking system will be used to bring the funds rate toward its target.

5. Sales of agency securities from the SOMA will likely commence sometime after the first increase in the target for the federal funds rate. The timing and pace of sales will be communicated to the public in advance; that pace is anticipated to be relatively gradual and steady, but it could be adjusted up or down in response to material changes in the economic outlook or financial conditions.

6. Once sales begin, the pace of sales is expected to be aimed at eliminating the SOMA’s holdings of agency securities over a period of three to five years, thereby minimizing the extent to which the SOMA portfolio might affect the allocation of credit across sectors of the economy. Sales at this pace would be expected to normalize the size of the SOMA securities portfolio over a period of two to three years. In particular, the size of the securities portfolio and the associated quantity of bank reserves are expected to be reduced to the smallest levels that would be consistent with the efficient implementation of monetary policy.

7. The Committee is prepared to make adjustments to its exit strategy if necessary in light of economic and financial developments.

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Discussion Questions

1. In your view, when would be the best time for the Committee to adopt and release any

revision to its exit strategy principles – after one of the next couple of FOMC meetings or further out in the future?

2. What approach would you suggest for the revision of the exit principles in light of policy developments of the past two years? For example, how should the exit principles accommodate the Committee’s new threshold-based forward guidance?

3. Would you want to retain a commitment to eliminating agency securities from the SOMA portfolio over a particular time frame? Would you prefer a more general commitment to eliminate holdings of agency securities without specifying a time frame? Or would you prefer to introduce flexibility to maintain some agency MBS in the SOMA, subject to future Committee decisions?

4. What are your views on sales of MBS or shorter-term Treasuries during exit? Would you

favor announcing specific plans with regard to those securities in revised exit principles?

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