meeting of the federal open market committee towson university november 18, 2005
TRANSCRIPT
Meeting of the Federal Open Market Committee
Towson UniversityNovember 18, 2005
Target Rate vs. Effective Funds Rate
Last Meeting
Raised Federal Funds Target Rate to
4.00%
Today’s Effective Federal Funds Rate
4.00%
Source: Bloomberg
Economic Indicators
Components of GDP Growth 3Q 2005
0 1 2 3 4 5 6 7 8 9
GDP Growth
Equipment and software
Residential FixedInvestment
Federal Governmentspending
Personal ConsumptionExpenditures
Source: BEA
Total Goods and Services3.8%
Consumer Price Index vs. Producer Price Index S.A.
January 1999-September 2005
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
1/1/
1999
4/1/
1999
7/1/
1999
10/1
/199
9
1/1/
2000
4/1/
2000
7/1/
2000
10/1
/200
0
1/1/
2001
4/1/
2001
7/1/
2001
10/1
/200
1
1/1/
2002
4/1/
2002
7/1/
2002
10/1
/200
2
1/1/
2003
4/1/
2003
7/1/
2003
10/1
/200
3
1/1/
2004
4/1/
2004
7/1/
2004
10/1
/200
4
1/1/
2005
4/1/
2005
7/1/
2005
10/1
/200
5
CPI PPI
CPI October 2005: +0.2%Core: +0.2%
PPI October 2005: +0.7%
Source: BLS
M/M
per
cent
cha
nge
Personal Consumption ExpendituresSeptember 2005
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05
Source: BEA
PCE September 2005: 0.5%
Y/Y
per
cent
cha
nge
University of Michigan Consumer Sentiment SurveySeptember 2001-November 2005
0
20
40
60
80
100
120
Index
Sep
-01
Nov-
01
Jan-0
2
Mar
-02
May
-02
Jul-02
Sep
-02
Nov-
02
Jan-0
3
Mar
-03
May
-03
Jul-03
Sep
-03
Nov-
03
Jan-0
4
Mar
-04
May
-04
Jul-04
Sep
-04
Nov-
04
Jan-0
5
Mar
-05
May
-05
Jul-05
Sep
-05
Month
Source: Economy.com
Rose to 79.9 in November from 74.2 in October
Labor Sector
Payroll Employment S.A.January 2001-October 2005
-400
-300
-200
-100
0
100
200
300
400
500
Month to Month Net Change
1000s
Jan-0
0
Apr-
00
Jul-00
Oct-
00
Jan-0
1
Apr-
01
Jul-01
Oct-
01
Jan-0
2
Apr-
02
Jul-02
Oct-
02
Jan-0
3
Apr-
03
Jul-03
Oct-
03
Jan-0
4
Apr-
04
Jul-04
Oct-
04
Jan-0
5
Apr-
05
Jul-05
Oct-
05
Net Change October 2005+56,000
Source: BLS
Unemployment Ratevs. Labor Force Participation Rate
January 2004-November 2005
4.0%
4.2%
4.4%
4.6%
4.8%
5.0%
5.2%
5.4%
5.6%
5.8%
Jan-
04
Feb
-04
Mar
-04
Apr
-04
May
-04
Jun-
04
Jul-0
4
Aug
-04
Sep
-04
Oct
-04
Nov
-04
Dec
-04
Jan-
05
Feb
-05
Mar
-05
Apr
-05
May
-05
Jun-
05
Jul-0
5
Aug
-05
Sep
-05
Oct
-05
65.0%
65.2%
65.4%
65.6%
65.8%
66.0%
66.2%
66.4%
Unemployment Rate Labor Force Participation Rate
Une
mpl
oym
ent
Labor F
orce Participation
Source: BLS
Current Unemployment: 5.0%Current Labor Force Participation Rate: 66.1%
Total Initial Claimants S.A. October 2001-September 2005
0
50000
100000
150000
200000
250000
300000
Oct
-01
Dec
-01
Feb
-02
Apr
-02
Jun-
02
Aug
-02
Oct
-02
Dec
-02
Feb
-03
Apr
-03
Jun-
03
Aug
-03
Oct
-03
Dec
-03
Feb
-04
Apr
-04
Jun-
04
Aug
-04
Oct
-04
Dec
-04
Feb
-05
Apr
-05
Jun-
05
Aug
-05
Source: BLS
Tot
al J
oble
ss C
laim
s September 2005: 257,454
Productivity3rd Quarter 2005
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
M/M Business M/M Non Farm Business M/M Manufacturing Y/Y Business Y/Y Non Farm Business Y/Y Manufacturing
Per
cent
Cha
nge
Source: BLS
Finance Sector
Risk SpreadJanuary 2001-November 2005
0
1
2
3
4
5
6
7
8
9
1/5/2001 7/5/2001 1/5/2002 7/5/2002 1/5/2003 7/5/2003 1/5/2004 7/5/2004 1/5/2005 7/5/2005
10 Year Treasury Moody's Seasoned Aaa Corporate Bond Yield
Moody's Seasoned Baa Corporate Bond Yield
Inte
rest
Ra
te
Source: FRED
Term SpreadJanuary 2001-November 2005
0
1
2
3
4
5
6
1/5/2001 7/5/2001 1/5/2002 7/5/2002 1/5/2003 7/5/2003 1/5/2004 7/5/2004 1/5/2005 7/5/2005
3-month Treasury Constant Maturity 10-Year Treasury Constant Maturity Rate
Inte
rest
Ra
te
Source: FRED
International Sector
Trade and Current Account Deficits
Rank Country Exports
Y-T-D(billions, $US)
Imports
Y-T-D(billions, $US)
Surplus or Deficit
(billions, $US)
Percent of Total Trade
1 Canada $140.4 $189.7 -$49.3 19.70%
2 Mexico $81.4 $114.8 -$33.4 11.70%
3 China $25.5 $139.9 -$114.4 9.90%
4 Japan $40.4 $95.6 -$55.2 8.10%
5 Federal Republic of Germany
$23.2 $56.3 -$33.1 4.70%
All Countries $603.9 $1,073.4 -$469.5 ---------
Trade Deficit YTD: -$469,500,000,000Deficit as a percentage of 3rd Quarter GDP 2005: 3.7%Deficit as a percentage of 3rd Quarter GDP 2004: 5%
Source: Census Bureau, BEA
Foreign Exchange Rates
11/04/05 1 Month Ago
1 Year Ago Percent Change
1 Month
Percent Change
1 Year
Euro 0.8455 0.8391 0.7762 0.8% 8.91%
Yen 118.20 114.33 106.02 3.4% 11.5%
Yuan 8.0856 8.0920 8.2765 -0.1% -2.3%
Source: FRED
Energy Sector
Natural Gas vs. Effective Funds Rate
0
0.5
1
1.5
2
2.5
3
3.5
4
January February March April May June July August0
1
2
3
4
5
6
7
8
9
EFF Funds Rate 2005 U.S. Natural Gas Wellhead Price 2005Source: FRED, EIA
Eff
ect
ive
Fu
nd
s R
ate
$ p
er M
MB
TU
Crude Oil vs. Effective Funds Rate
0
0.5
1
1.5
2
2.5
3
3.5
4
January February March April May June July August September October0
10
20
30
40
50
60
70
Effective Federal Funds Rate 2005 Oil Prices 2005
Source: FRED, EIA
Eff
ect
ive
Fu
nd
s R
ate
$ p
er b
arre
l
Real Estate Sector
Existing Home Sales & New Home Sales Month to Month Percent Change
June 2005-September 2005
-0.12
-0.1
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05
Existing Home Sales New Home Sales
Source: National Association of Realtors
M/M
Pe
rce
nt
Ch
an
ge
Office Vacancy Rates for Select Metropolitan Areas, Mid-Year 2005
8.9%9.7%
10.9%
13.3%
15.7%16.3%
19.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Source: Delta Associates
Vac
ancy
Rat
e
30 Year Conventional Mortgage Rate, Weekly
4.8
5
5.2
5.4
5.6
5.8
6
6.2
6.4
6.6
1/8/
2004
2/8/
2004
3/8/
2004
4/8/
2004
5/8/
2004
6/8/
2004
7/8/
2004
8/8/
2004
9/8/
2004
10/8
/200
4
11/8
/200
4
12/8
/200
4
1/8/
2005
2/8/
2005
3/8/
2005
4/8/
2005
5/8/
2005
6/8/
2005
7/8/
2005
8/8/
2005
9/8/
2005
10/8
/200
5
11/8
/200
5
30 Year Convential Mortgage Rate
November 10, 2005: 6.36%
Pe
rce
nt
Source: FRED
Retail Sector
Retail & Food Services Sale, Y/Y Percent Change January 2001 through October 2005
Source: Dismal.com
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%Ja
n-01
May
-01
Sep
-01
Jan-
02
May
-02
Sep
-02
Jan-
03
May
-03
Sep
-03
Jan-
04
May
-04
Sep
-04
Jan-
05
May
-05
Sep
-05
Y/Y
Pe
rce
nt
Ch
an
ge
Discussion
The Committee believes that continuing to address potential inflation at a pace that is likely to be measured is the best course of action at present. Therefore we will raise the target rate twenty five basis points to 4.25 percent. The Committee will respond to any inflationary pressures with appropriate action to fulfill its obligation to maintain price stability.
To be released in a statement shortly following this meeting…
Thank You
Mileva CohenBrian DintermanThomas Dowling
Jessica FoxChris GoodmanAndrew Young
Dr. Matthew Chambers - Advisor