january 28–29, 2014 authorized for public release 159 of ...2014/01/29 · class ii fomc –...

Appendix 1: Materials used by Mr. Potter

January 28–29, 2014 Authorized for Public Release 159 of 192

Class II FOMC – Restricted (FR)

Material for Briefing on Financial Developments and Open Market Operations

Simon Potter January 28, 2014


1.4

1.8

2.2

2.6

3.0

01/01/13 04/01/13 07/01/13 10/01/13 01/01/14

Percent

5-Year5-Year, 5-Years Forward

JEC Sep FOMC

Dec FOMC

(6) Inflation Compensation*

*Derived from Treasury Inflation-Protected Securities.Source: Federal Reserve Board of Governors

Exhibit 1 Class II FOMC – Restricted (FR)

0.00

0.50

1.00

1.50

2.00

2.50

Q1-2014 Q1-2015 Q1-2016 Q1-2017

Percent 12/17/1301/24/14Median December SEP Forecast

(4) Implied Federal Funds Rate Path*

*Derived from federal funds futures and Eurodollar futures. Source: Bloomberg, Federal Reserve Bank of New York, Federal Reserve Board of Governors

-30

-20

-10

0

10

20

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8 9

BPS/Year BPS

Years Forward*; Tenor**

1-Year Nominal Forwards* (LHS)3-Month Implied Volatility** (RHS)

(3) Changes in Nominal Forwards and Implied Volatility Since December FOMC

*X-axis represents years forward for 1-year nominal forwards. **X-axis represents underlying tenor for options with 3-month expiry.Source: Federal Reserve Board of Governors, Bloomberg

2.0

2.1

2.2

2.3

2.4

2.5

1750

1775

1800

1825

1850

12/16/13 12/26/13 01/07/14 01/15/14 01/24/14

Percent Index

Front-Month S&P 500 Futures Contract (LHS)Dec '16 ED Futures-Implied Rate (RHS)

Source: Bloomberg

FOMC

December Employment

Report

(2) Front-Month S&P 500 Futures Contract and Eurodollar Futures Rate

(1) Asset Price Changes Since December FOMC

*2 days around meeting: from 12/17/13 through 12/19/13.**FHLMC 30-year survey rate.***Positive value indicates dollar appreciation.Source: Bloomberg, Barclays

Around SinceMeeting* FOMC

Changes in Basis PointsDec '16 ED Implied Rate +13 +1110-Year Treasury Yield +9 -12Primary Mortgage Rate** +5 -35-Year Inflation Compensation -2 +9HY Corp. Credit OAS -8 -7

Changes in PercentS&P 500 Index +1.6 +0.5DXY Dollar Index*** +0.7 +0.5

020406080

100

Dealers Buyside Dealers Buyside Dealers Buyside

< 6.0% 6.0 - 6.5% > 6.5%

Percent

Unemployment Rate

Dealers Dealer AverageBuyside Buyside Average

*Conditioned on assumption that projected inflation 1 to 2 years ahead remains below 2.5 percent and longer-term inflation expectations remain well anchoredprior to the first rate hike. Dots scaled by number of respondents. Source: Federal Reserve Bank of New York Surveys

(5) Distribution of Market Beliefs on Unemployment Rate Outcomes at First Rate Hike*


https://www.federalreserve.gov/monetarypolicy/files/FOMC20140129meeting.pdf

100

200

300

400

500

600

700

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

BPS

ItalySpain

Draghi’s Speech

OMT Details Announced FOMC JEC

(8) Euro Area Forward Rate Spreads*

*5-year, 5-year forward nominal sovereign rate spreads to German equivalent. Source: Bloomberg

0

2

4

6

8

10

12

10

15

20

25

01/01/12 07/01/12 01/01/13 07/01/13 01/01/14

Percent Percent Total Financing Growth* (LHS)7-Day Repo Rate (RHS)

(11) Chinese Total Financing Growth and Seven-Day Repo Rate

*Q.o.Q annualized growth. Monthly data. Includes bank loans, selected off-balance sheet loans, trust loans, corporate bonds and equity issuance. Source: People’s Bank of China, CEIC, FRBNY Staff Calculations, Bloomberg


-12

-9

-6

-3

0

3-50

0

50

100

150

200

01/01/13 04/01/13 07/01/13 10/01/13 01/01/14

Percent BPS

10-Year Treasury Yield (LHS)5-Year EM Yields** (LHS)EM Currencies** (RHS)

JEC

Depreciation Against Dollar

Sep FOMC

Dec FOMC

(10) Cumulative Changes in U.S. and Emerging Market Assets*

*Since 01/01/13. **2012 GDP-weighted average of 15 major emerging market economies. Source: Bloomberg, FRBNY Staff Calculations

0

20

40

60

80

01/01/13 04/01/13 07/01/13 10/01/13 01/01/14

BPS/Year

U.S.U.K.Euro Area

FOMC, U.K. Employment

Report

JEC

(7) Swaption-Implied Volatility*

*3-month option on 2-year underlying rate. Source: Bloomberg

80

85

90

95

100

105

110

01/01/13 04/01/13 07/01/13 10/01/13 01/01/14

Indexed to 12/31/12

FOMC JEC

(12) Shanghai Composite Index

Source: Bloomberg

(9) Euro Area Asset Price Changes

Source: Bloomberg

Since FOMC

Since JEC

Changes in Basis PointsItalian 10-Year Yield -13 -1Spanish 10-Year Yield -30 -39

Changes in PercentEuroStoxx 50 Index +2.9 +7.3EuroStoxx Bank Index +9.5 +24.3FTSE MIB Index +8.0 +11.1IBEX Index +5.6 +16.6




0

20

40

60

80

100

120

0

50

100

150

200

250

09/23/13 10/22/13 11/20/13 12/19/13 01/21/14

Number $ Billions

Total Allotment (LHS)Quarter- or Month-End Allotment (LHS)Number of Participants (RHS)

Year End

(14) Overnight RRP Operation Results

Source: Federal Reserve Bank of New York

2,400

2,800

3,200

3,600

4,000

4,400

4,800

Q1-2012 Q1-2013 Q1-2014 Q1-2015 Q1-2016 Q1-2017 Q1-2018

$ Billions MEP & Reinvestments OnlyGrowing PortfolioStable PortfolioShrinking PortfolioApril Survey

(13) SOMA Portfolio Holdings (Median Forecasts)

Source: Federal Reserve Bank of New York Survey of Primary Dealers

First Change in Pace

Purchases End

First Rate Hike

Current

0

20

40

60

80

100

09/23/13 10/21/13 11/18/13 12/16/13 01/13/14

Maximum Bids*Bids ≥ $1.0 Billion Year

End

(16) Number of Maximum Bids and Bids Greater Than or Equal to $1.0 Billion

*Allotment capped at $0.5 billion from 09/23/13 to 09/26/13, $1.0 billion from 09/27/13 to 12/20/13, and $3.0 billion from 12/23/13 to the present. Source: Federal Reserve Bank of New York

0

20

40

60

80

100

120

09/23/13 10/21/13 11/18/13 12/16/13 01/13/14

$ Billions

Week Starting

Dealers BanksGSEs (incl. FHLBs) Prime MMFsGov't MMFs

Week Including Year End

(17) Overnight RRP Allotment by Counterparty Type, Weekly Average

Source: Federal Reserve Bank of New York

0

50

100

150

200

-5 0 5 10 15 20 25

Tota

l Allo

tmen

t ($

Bill

ions

)

Treasury Repo Rate less Fixed Rate (BPS)

*Treasury repo rate is the average of the Primary Dealer survey rate, brokered offer rate at time of operation, and DTCC Treasury GCF repo index. Source: Federal Reserve Bank of New York, Bloomberg

10/31/13 11/29/13

(15) Overnight RRP Participation vs. Rate Spread*

09/30/13

12/31/13



(21) Overnight RRP Recommendations

• Extend exercise for one year.

• Raise the allotment cap higher in a series of steps and move gradually to full allotment.

• Continue to manage the rate within a band of 0 to 5 basis points.

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

(20) Overnight RRP Exercise Objectives

• Understand extent to which overnight RRPs can establish a floor on rates.

• Evaluate impact of adding counterparties on effectiveness.

• Assess feasibility and impact of operating later or twice in one day.

• Learn if further adjustment is needed soon, to allow adequate time for testing.

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12

10/21/13 11/11/13 12/02/13 12/23/13 01/13/14

Percent

FRBNY Treasury Repo Dealer Survey RateOne-Month Treasury Bill YieldOvernight RRP Rate

Year End

(18) Short-Term Interest Rates

Source: Federal Reserve Bank of New York, Bloomberg

-40

-30

-20

-10

0

10

20

12/1

2/13

12/1

9/13

12/2

6/13

01/0

2/14

01/0

9/14

01/1

6/14

01/2

3/14

01/3

0/14

02/0

6/14

02/1

3/14

02/2

0/14

02/2

7/14

$ Billions ActualForecast

(19) Weekly Bill Supply

Source: U.S. Treasury, Wrightson



Appendix 2: Materials used by Mr. Potter



Overnight Reverse Repurchase Agreement Resolution January 28, 2014


Proposed Resolution on Overnight Reverse Repurchase Agreements

“The Federal Open Market Committee (FOMC) authorizes the Federal Reserve Bank of New York to conduct a series of fixed-rate, overnight reverse repurchase operations involving U.S. Government securities, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, for the purpose of further assessing the potential role for such operations in supporting the implementation of monetary policy. The reverse repurchase operations authorized by this resolution shall be offered at a fixed rate that may vary from zero to five basis points, and for an overnight term, or such longer term as is warranted to accommodate weekend, holiday, and similar trading conventions. Any change to the offered rate within the range specified above or the per-counterparty bid limits will require approval of the Chairman. The System Open Market Account manager will notify the FOMC in advance about any changes to the terms of operations. These operations shall be authorized through January 30, 2015.”

Memo: Resolution approved September 17, 2013

“The Federal Open Market Committee (FOMC) authorizes the Federal Reserve Bank of New York to conduct a series of fixed-rate, overnight reverse repurchase operations involving U.S. Government securities, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, for the purpose of assessing operational readiness. The reverse repurchase operations authorized by this resolution shall be (i) offered at a fixed rate that may vary from zero to five basis points, (ii) offered at up to a capped allotment per counterparty of $1 billion per day and (iii) for an overnight term, or such longer term as is warranted to accommodate weekend, holiday, and similar trading conventions. The System Open Market Account Manager will inform the FOMC in advance of the terms of the planned operations. These operations may be announced when authorized by the Chairman, may begin when authorized by the Chairman on or after September 23, 2013, and shall be authorized through the FOMC meeting that ends on January 29, 2014.”

Memo: Amendment approved December 17, 2013

“The Federal Open Market Committee authorizes an increase in the maximum allotment cap for the series of fixed-rate, overnight reverse repurchase operations approved on September 17, 2013, to $3 billion per counterparty per day from its previous level of $1 billion per counterparty per day. All other aspects of the resolution remain unchanged.”


Appendix 3: Materials used by Mr. Wilcox



Material for

Forecast Summary

David Wilcox January 28, 2014


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

2012 2013 2014 2015 2016

70% confidence interval

January TBDecember TB

132

135

138

141

144

147

132

135

138

141

144

147 Millions

Total Payroll Employment

2012 2013 2014 2015 2016

January TBDecember TBSeptember 2012 TB

3

4

5

6

7

8

9

10

11

3

4

5

6

7

8

9

10

11Percent

Unemployment Rate

2012 2013 2014 2015 2016*Effect of emergency unemployment compensation and state-federalextended benefit programs.

Natural Rate with EEB*

70% conf. interval

January TBDecember TBSept. 2012 TB

0

20

40

60

80

100Percent

15 25 35 45 55 65 75

Labor Force Participation over theLife Cycle

Age (years)

Age 65

Note: CPS tabulations averaged between 2008 and 2013.

MaleFemale

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5Percent change, annual rate

PCE Prices Excluding Food and Energy

2012 2013 2014 2015 2016

70% confidence interval

January TBDecember TB

-1

0

1

2

3

-1

0

1

2

3

Cont. to Q4/Q4 change, pp.

2013 2014 2015 2016

Decomposition of Core PCE Inflation

Expected inflationSlackImport prices

Inflation gapOther factorsCore PCE inflation



Appendix 4: Materials used by Mr. Kamin


Class II FOMC – Restricted (FR) Material for The Foreign Economic Outlook Steve Kamin January 28, 2014


Class II FOMC - Restricted (FR)

The Foreign Economic Outlook

-1

0

1

2

3

4

5

2012 2013 2014 2015 2016

1. Foreign GDPPercent change, annual rate

Advanced foreign economies

Emerging market economies

-2

-1

0

1

2

3

4

5

2007 2008 2009 2010 2011 2012 2013

Percentage points

Headline inflationInflation expectationsOutput gap

SupplyTaxesResidual

3. Estimated Contribution to AFE AggregateInflation (ex Japan)

0

1

2

3

4

5

2011 2013 2015

Four-quarter percent change

Canada

Euro area

United Kingdom

United States*

2. Headline CPI Inflation in the Major AdvancedEconomies

* The measure is PCE inflation.

62.5

63.0

63.5

64.0

2011 2012 2013

5. Labor Force ParticipationPercent of population aged 16 and older

United Kingdom

United States*

* Published data adjusted by staff to account for changes in populationweights.

6

7

8

9

10

2011 2012 2013

4. Unemployment RatePercent

BOE forwardguidance

announced

United Kingdom

United States

98

99

100

101

102

103

104

2011 2012 2013

6. EmploymentJanuary 2012 = 100

United Kingdom*

United States**

* Labor Force Survey.** Household Survey.

Page 1 of 1



Appendix 5: Materials used by Mr. English


Class I FOMC – Restricted Controlled (FR) Material for Briefing on Monetary Policy Alternatives Bill English January 28-29, 2014


Market Expectations and Policy Issues

Source: January 20, 2014 Primary Dealer Survey.

2012 2014 2016 2018 2020 2022 20241500

2000

2500

3000

3500

4000

4500

5000$ Billion

Median PDAlternative BAlternative CAlternative A

Total Projected SOMA Security Holdings

Jan. Mar. May July Sept. Nov. Jan.2014

0

20

40

60

80

100Billions of dollars

DecemberJanuary

Median Dealer Purchase Expectations

H1 H2 H1 H2 H1 H2 H1 H22014 2015 2016 2017

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Percent

DecemberJanuary

Median Dealer Expectation for Path ofFederal Funds Rate

Avg. Dealer Probability: Unemployment Rate at First Rate Increase

6.50%

JanuaryDecember

0

10

20

30

40

50

60

70

80

Percent Probability

0

10

20

30

40

50

60

70Percent Probability

LowerUnemployment

RateThreshold

AdditionalFocus

onInflation

AdditionalPost-

ThresholdInfo

Focus onMedian

SEPFF Rate

Other

Avg. Dealer Odds on Further Changes to Forward Guidance

0

10

20

30

40

50

60

70Percent of Respondents

January March April June September

Dealer Modal Timing of Further Changeto the Forward Guidance

2014

Page 1 of 13

Class I FOMC – Restricted Controlled (FR)



DECEMBER 2013 FOMC STATEMENT

1. Information received since the Federal Open Market Committee met in October indicates that economic activity is expanding at a moderate pace. Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated. Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing. Inflation has been running below the Committee’s longer-run objective, but 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 pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

3. Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months and 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. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a

Page 2 of 13



preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view 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. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to ¼ percent 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. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6½ percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. 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.

Page 3 of 13



FOMC STATEMENT—JANUARY 2014 ALTERNATIVE A

1. Information received since the Federal Open Market Committee met in October December indicates that growth in economic activity is expanding at a moderate pace picked up in recent quarters. Labor market conditions have shown further improvement; indicators were mixed. The unemployment rate has declined but remains elevated. Household spending and business fixed investment advanced somewhat more quickly in recent months, while but the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth, although the extent of restraint may be is diminishing. Inflation has been running well below the Committee’s longer-run objective, but even though 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 activity will pick up from its recent expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced but still tilted slightly to the downside. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

3. Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. The Committee judges that the information about labor market conditions and inflation received since it met in December does not warrant a reduction in the pace of asset purchases at this meeting. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January Accordingly, the Committee will continue to add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate,

Page 4 of 13



until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view 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. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to ¼ percent 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. Information relevant to a comprehensive assessment of labor market conditions includes the level and growth of payroll employment, labor force participation rates, and measures of hiring and job separation. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that at least until the unemployment rate declines below 6½ [ 6 percent, especially if | 5½ percent so long as ] projected inflation continues to run below the Committee’s 2 percent longer-run goal. When the Committee eventually 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.

Page 5 of 13



FOMC STATEMENT—JANUARY 2014 ALTERNATIVE B

1. Information received since the Federal Open Market Committee met in October December indicates that growth in economic activity is expanding at a moderate pace picked up in recent quarters. Labor market conditions have shown further improvement; indicators were mixed. The unemployment rate has declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth, although the extent of restraint may be is diminishing. Inflation has been running below the Committee’s longer-run objective, but 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 activity will pick up from its recent expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

3. Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce make a further measured reduction in the pace of its asset purchases. Beginning in January February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 $30 billion per month rather than $40 $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 $35 billion per month rather than $45 $40 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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months and 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. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward

Page 6 of 13



its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view 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. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to ¼ percent 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. The Committee now anticipates continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6½ percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. 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.

Page 7 of 13



FOMC STATEMENT—JANUARY 2014 ALTERNATIVE C

1. Information received since the Federal Open Market Committee met in October December indicates that growth in economic activity is expanding at a moderate pace picked up in recent quarters. Labor market conditions have shown further improvement; in particular, the unemployment rate, though still elevated relative to levels the Committee judges consistent with its dual mandate over the longer run, has declined but remains elevated continued to decline. Household spending and business fixed investment advanced more quickly in recent months, while even as the recovery in the housing sector slowed somewhat in recent months further. The extent to which fiscal policy is restraining economic growth, although the extent of restraint may be is diminishing. Although inflation has been running below the Committee’s longer-run objective, but 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 activity will pick up from its recent expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence, but it continues to anticipate that inflation will move back toward its objective over the medium term.

3. Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative continuing progress toward maximum employment and the outlook for ongoing improvement in the outlook for labor market conditions, the Committee decided to modestly further reduce the pace of its asset purchases. Beginning in January February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 $25 billion per month rather than $40 $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 $30 billion per month rather than $45 $40 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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

4. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate,

Page 8 of 13



until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely continue to reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

5. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view 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. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to ¼ percent 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. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6½ percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. 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.

Page 9 of 13



December 2013 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. Beginning

in January, the Desk is directed to purchase longer-term Treasury securities at a pace of

about $40 billion per month and to purchase agency mortgage-backed securities at a pace

of about $35 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.

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Directive for January 2014 Alternative A Consistent with its statutory mandate, the Federal Open Market Committee seeks





in January, The Desk is directed to purchase continue purchasing longer-term Treasury

securities at a pace of about $40 billion per month and to purchase continue purchasing

agency mortgage-backed securities at a pace of about $35 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.

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Directive for January 2014 Alternative B Consistent with its statutory mandate, the Federal Open Market Committee seeks





in January February, the Desk is directed to purchase longer-term Treasury securities at

a pace of about $40 $35 billion per month and to purchase agency mortgage-backed

securities at a pace of about $35 $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.

Page 12 of 13



Directive for January 2014 Alternative C Consistent with its statutory mandate, the Federal Open Market Committee seeks





in January February, the Desk is directed to purchase longer-term Treasury securities at

a pace of about $40 $30 billion per month and to purchase agency mortgage-backed

securities at a pace of about $35 $25 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.

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Appendix 6: Materials used by Ms. Logan


Statement Regarding Purchases of Treasury Securities and Agency Mortgage-Backed Securities

On January 29, 2014, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the

Desk) at the Federal Reserve Bank of New York to purchase additional agency mortgage-backed securities (MBS) at

a pace of about $30 billion per month and longer-term Treasury securities at a pace of about $35 billion per

month, beginning in February 2014. The existing January schedules for agency MBS purchases at a pace of $35

billion per month and Treasury securities purchases at a pace of $40 billion per month remain in effect until that

time. The FOMC also directed the Desk to maintain its existing policies of reinvesting principal payments from the

Federal Reserve’s holdings of agency debt and agency MBS in agency MBS and of rolling over maturing Treasury

securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should

maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader

financial conditions more accommodative.

Purchases of agency MBS will continue to be concentrated in newly-issued agency MBS in the To-Be-Announced

(TBA) market, and purchases of longer-term Treasury securities will continue to be distributed using the existing

set of sectors and approximate weights. These purchase distributions could change if market conditions warrant.

The amount of agency MBS to be purchased each month and the tentative schedule of Treasury purchase

operations for the following calendar month will continue to be announced on or around the last business day of

each month. Additionally, the planned amount of purchases associated with reinvestments of principal payments

on holdings of agency securities that are anticipated to take place over each monthly period will be announced on

or around the eighth business day of the month.

Consistent with current practices, the purchases of agency MBS and Treasury securities will be conducted with the

Federal Reserve’s eligible counterparties through a competitive bidding process and results will be published on

the Federal Reserve Bank of New York’s website. The Desk will continue to publish transaction prices for individual

operations at the end of each monthly period. All other purchase details remain the same at this time.

Additional information on the purchases of agency MBS and longer-term Treasury securities can be found in a set

of Frequently Asked Questions for each asset class in the following locations:

FAQs: Agency MBS Purchases »

FAQs: Purchases of Longer-term Treasury Securities »


http://www.newyorkfed.org/markets/ambs/ambs_faq.htmlhttp://www.newyorkfed.org/markets/longertermtreas_faq.html

Appendix 7: Materials used by Ms. Logan


Class I FOMC - Restricted Controlled FR

Statement to Revise Terms of Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise

As noted in the October 19, 2009, Statement Regarding Reverse Repurchase Agreements, the Open

Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) has been working

internally and with market participants on operational aspects of tri-party reverse repurchase agreements (RRPs)

to ensure that this tool will be ready to support the monetary policy objectives of the Federal Open Market

Committee (Committee). RRPs are a tool that can be used for managing money market interest rates, and are

expected to provide the Federal Reserve with greater control over short-term rates.

In further support of this goal, the Committee has authorized the Desk to continue the exercise established in

September 2013 of offering daily overnight RRPs and to modify the terms. Specifically, the authorization to

conduct this exercise was extended one year, through January 30, 2015. Effective with the operation to be

announced tomorrow, Thursday, January 30, 2014, the maximum allotment cap will be increased to $5 billion per

counterparty per day from its current level of $3 billion per counterparty per day. It is expected that, over the

coming months, the maximum allotment cap may be increased further.

The fixed rate for these auctions continues to be authorized between 0 and 5 basis points. The current fixed rate

for the operations will be maintained at 0.03 percent (three basis points). All other terms of the operations will

remain the same. The operations will remain open to all eligible RRP counterparties, will use Treasury collateral,

will settle same-day, and will have an overnight tenor. The RRP operations will continue to be held from 12:45 pm

to 1:15 pm (Eastern Time).

Future changes to the maximum bid amount and rate for these RRP operations, or any other key parameter, will

be announced with at least one business day prior notice on the New York Fed’s website.

Like earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal

Reserve. These operations do not represent a change in the stance of monetary policy, and no inference should be

drawn about the timing of any change in the stance of monetary policy in the future.

The results of these operations will be posted on the public website of the New York Fed, together with the results

for other temporary open market operations. The outstanding amounts of RRPs are reported as a factor absorbing

reserves in Table 1 in the Federal Reserve's H.4.1 statistical release, their remaining maturity is reported in table 2

of that release, and they are reported as liability items in Tables 8 and 9 of that release.


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