fomc 20081029 material

Appendix 1: Materials used by Mr. Dudley

October 2829, 2008 160 of 206Authorized for Public Release

(1) Assets in Prime Money Market Funds Decline Sharply January 1, 2008 October 23, 2008

Source: iMoneyNet

Class II FOMC Restricted FR

1400150016001700180019002000210022002300

01/01/08 03/01/08 05/01/08 07/01/08 09/01/08

$Billions

0100200300400500600700800900

$Billions

Prime (LHS)Treasury Only (RHS)Treasury & Repo (RHS)Treasury & Agency (RHS)

Oct.7: Commercial Paper Funding Facility announced (effective Oct.27)

Sept.19: Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility announced

Sept.14: Lehman Brothers Holding f iles for bankruptcySept.16: Reserve Fund breaks the buck

Oct.21: Money Market Investor Funding Facility announced

(2) Treasury Bill Yields Decline After Lehman Brothers Holding Company Declares BankruptcyJanuary 1, 2008 October 24, 2008

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

01/01/08 03/01/08 05/01/08 07/01/08 09/01/08

Percent

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0Percent

1-Month3-Month6-Month

Sept.14: Lehman Brothers Holding f iles for bankruptcy

Oct.13: Euro Area AnnouncementOct.14: Treasury, Federal Reserve, and FDIC

Source: Bloomberg

(3) Fails in the Treasury Market Rise as Treasury GC Repo Rates DeclineJanuary 1, 2008 October 24, 2008

Source: Fixed Income Clearing Corporation, Federal Reserve Bank of New York

0100200300400500600700800900

01/02/08 02/14/08 04/01/08 05/13/08 06/25/08 08/07/08 09/19/08

$Billions

0.00.51.01.52.02.53.03.54.04.5

Percent

Treasury Security Fails Volume (LHS)Overnight GC Repo Rate (RHS)

Oct.8-9: The Treasury re-opens four off-the-run 10-year notes

Oct.15: Re-opened 10-year notes settle


Page 1 of 12


(4) Three-Month AA-Rated Commercial Paper Rates Begin to Decline from Elevated Levels January 1, 2008 October 24, 2008

Source: Federal Reserve Board


(5) Estimated Average Maturity of Outstanding AA-Rated Commercial Paper Declines* January 1, 2008 October 24, 2008


1

2

3

4

5

6

01/01/08 03/01/08 05/01/08 07/01/08 09/01/08

Percent

1

2

3

4

5

6Percent

Non-Financial CPFinancial CPABCP





0

5

10

15

20

25

30

01/01/08 03/01/08 05/01/08 07/01/08 09/01/08

Days

0

5

10

15

20

25

30Days

FinancialABCPNon-Financial





*Two-week moving average of daily weighted average maturity

Page 2 of 12


(6) One-Month LiborOIS Spreads at Exceptionally Wide Levels July 1, 2007 October 24, 2008

Source: Bloomberg

Source: Bloomberg

(7) Three-Month LiborOIS Spreads at Exceptionally Wide Levels July 1, 2007 October 24, 2008


0

50

100

150

200

250

300

350

07/01/07 09/01/07 11/01/07 01/01/08 03/01/08 05/01/08 07/01/08 09/01/08

BPS

0

50

100

150

200

250

300

350BPS

U.S.U.K.Euro Area



0

50

100

150

200

250

300

350

400

07/01/07 09/01/07 11/01/07 01/01/08 03/01/08 05/01/08 07/01/08 09/01/08

BPS

0

50

100

150

200

250

300

350

400BPS

U.S.U.K.Euro Area



Page 3 of 12


(8) Term Auction Facility Auction Results December 20, 2007 October 23, 2008



AuctionSettlement Term Amount

Minimum Bid Rate

Stop-out Rate Propositions Bid/Cover Bidders

12/20/2007 28 Days $20 b 4.17% 4.65% $61.6 b 3.08 93

12/27/2007 35 Days $20 b 4.15% 4.67% $57.7 b 2.88 73

1/17/2008 28 Days $30 b 3.88% 3.95% $55.5 b 1.85 56

1/31/2008 28 Days $30 b 3.10% 3.12% $37.5 b 1.25 52

2/14/2008 28 Days $30 b 2.86% 3.01% $58.4 b 1.95 66

2/28/2008 28 Days $30 b 2.81% 3.08% $68.0 b 2.27 72

3/13/2008 28 Days $50 b 2.39% 2.80% $92.6 b 1.85 82

3/27/2008 28 Days $50 b 2.19% 2.62% $88.9 b 1.78 88

4/10/2008 28 Days $50 b 2.11% 2.82% $91.6 b 1.83 79

4/24/2008 28 Days $50 b 2.05% 2.87% $88.9 b 1.77 89

5/8/2008 28 Days $75 b 2.00% 2.22% $96.8 b 1.29 71

5/22/2008 28 Days $ 75 b 1.99% 2.10% $84.4 b 1.13 75

6/5/2008 28 Days $ 75 b 2.00% 2.26% $95.9 b 1.28 73

6/19/2008 28 Days $ 75 b 2.05% 2.36% $89.4 b 1.19 76

7/3/2008 28 Days $ 75 b 2.01% 2.34% $90.9 b 1.21 77

7/17/2008 28 Days $ 75 b 2.01% 2.30% $93.3 b 1.24 82

7/31/2008 28 Days $ 75 b 2.01% 2.35% $90.6 b 1.21 70

8/14/2008 84 Days $ 25 b 2.04% 2.75% $54.8 b 2.19 64

8/14/2008 28 Days $ 50 b 2.01% 2.45% $75.5 b 1.51 65

8/28/2008 28 Days $ 75 b 2.01% 2.38% $84.2 b 1.12 66

9/11/2008 84 Days $ 25 b 2.02% 2.67% $31.6 b 1.27 38

9/11/2008 28 Days $ 25 b 2.01% 2.53% $46.2 b 1.85 53

9/25/2008 28 Days $ 75 b 1.94% 3.75% $133.6 b 1.78 85

10/9/2008 85 Days $ 150 b 1.39% 1.39% $138.1 b 0.92 71

10/23/2008 28 Days $ 150 b 1.11% 1.11% $113.3 b 0.76 74

Page 4 of 12


BOJ$50 Bln

BOE$80 Bln

Denmark National Banken$10 Bln

Riksbank$10 Bln

RBA$20 Bln

ECB$280 Bln

Norges Bank $3 Bln

SNB $24 Bln

(9) Outstanding FX Swap Lines As of October 22, 2008

Source: Federal Reserve Bank of New York


(10) Total Outstanding FX Swap Draw-Downs December 1, 2007 October 22, 2008


0

50

100

150

200

250

300

350

400

450

500

12/01/07 02/01/08 04/01/08 06/01/08 08/01/08 10/01/08

$ Billions

0

50

100

150

200

250

300

350

400

450

500$ Billions

SNB Riksbank RBA ECB Norges Bank Danmark National Banken BOJ BOE

Page 5 of 12


Class II FOMC Restricted FR(11) Investment Bank CDS Spreads

August 1, 2007 October 24, 2008

Source: Markit

0200400600800

10001200140016001800

08/01/07 10/01/07 12/01/07 02/01/08 04/01/08 06/01/08 08/01/08 10/01/08

BPS

020040060080010001200140016001800BPS

Morgan Stanley

Goldman Sachs

Sept.22: Goldman and Morgan Stanley become bank holding companies


Sept.14: Lehman Brothers Holding f iles for bankruptcy & Bank of America announced purchse of Merrill

(12) Commercial Bank CDS SpreadsAugust 1, 2007 October 24, 2008

Source: Markit

0

50

100

150

200

250

300

350

400

08/01/07 10/01/07 12/01/07 02/01/08 04/01/08 06/01/08 08/01/08 10/01/08

BPS

0

50

100

150

200

250

300

350

400BPS

Bank of AmericaCitigroupJPMorgan ChaseWells Fargo

Oct.13: Euro Area AnnouncementOct.14: Treasury, Federal Reserve, and FDIC announcement

Sept.14: Lehman Brothers Holding f iles for bankruptcy & Bank of America announced purchse of Merrill

(13) Non-Bank Financial CDS Spreads at Elevated LevelsJanuary 1, 2008 October 24, 2008

Source: Markit

0

200

400

600

800

1000

1200

1400

01/01/08 02/01/08 03/01/08 04/01/08 05/01/08 06/01/08 07/01/08 08/01/08 09/01/08 10/01/08

BPS

0

200

400

600

800

1000

1200

1400BPS

Hartford Financial Services GroupGeneral Electric Capital CorporationAmerican Express CompanyPrudential Financial

Sept.14: Lehman Brothers Holding files for bankruptcy


Page 6 of 12



(15) Freddie Mac Discount Note Rates Increase Relative to OISJanuary 1, 2008 October 20, 2008

Source: Freddie Mac

Source: Fannie Mae

(14) Fannie Mae Discount Note Rates Increase Relative to OISJanuary 1, 2008 October 22, 2008

-250

255075

100125150175200

01/01/08 02/01/08 03/01/08 04/01/08 05/01/08 06/01/08 07/01/08 08/01/08 09/01/08 10/01/08

BPS

-250255075100125150175200BPS

3-Month DN Auction Stop-Out Rate Spread to OIS




Sept.7: Fannie Mae and Freddie Mac enter conservatorship

-250

255075

100125150175200

01/01/08 02/01/08 03/01/08 04/01/08 05/01/08 06/01/08 07/01/08 08/01/08 09/01/08 10/01/08

BPS

-250255075100125150175200

BPS






(16) Agency Debt Spreads Widen After the FDIC Announces Guarantee of Bank DebtJanuary 1, 2008 October 24, 2008

Source: Bloomberg

20

40

60

80

100

120

140

160

01/01/08 02/01/08 03/01/08 04/01/08 05/01/08 06/01/08 07/01/08 08/01/08 09/01/08 10/01/08

BPS

20

40

60

80

100

120

140

160BPS

Fannie Mae 5-YearFreddie Mac 5-YearFannie Mae 10-YearFreddie Mac 10-Year




Page 7 of 12



0

500

1000

1500

2000

2500

3000

3500

8-Aug-07 9-Jan-08 27-Aug-08 8-Oct-08 22-Oct-08 12/31/2008(Indicative)

$ Billions

0

500

1000

1500

2000

2500

3000

3500$ Billions

Other Credt Ext.MMIFFAMLF/CPFFMaiden Lane LLCFX SwapsPCF BorrowingTerm Auction FacilityPDCF BorrowingSingle Tranche RepoShort-Term RepoLong-Term RepoPermanent Holdings

(17) Federal Reserve Balance Sheet August 2007 December 2008


(18) Fed Funds Rate Trades Below the TargetJanuary 1, 2008 October 24, 2008

0.00.51.01.52.02.53.03.54.0

08/01/08 08/15/08 08/29/08 09/12/08 09/26/08 10/10/08 10/24/08

Percent

0.00.51.01.52.02.53.03.54.0

Percent

Fed Funds TargetFed Funds EffectiveInterest Rate Paid on Excess Reserve BalancesFed Funds Low

Oct.9: Federal Reserve begins to pay interest on reserve balances

Oct.23: Federal Reserve decreases the spread betw een interest paid on excess reserves and the Fed Funds target


(19) Intraday Fed Funds Trading


-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0Percent

Oct.9: Federal Reserve begins to pay interest on reserve balances Oct.23: Federal Reserve decreases the spread betw een interest paid on excess reserve balances and the Fed Funds target rateTarget Rate

Effective Rate Interest on Excess Reserve Balances

Oct.2 Oct.9 Oct.16 Oct.23

Page 8 of 12


Class II FOMC Restricted FR(20) Hedge Fund Performance Declines Sharply*

January 1, 2008 October 1, 2008

Source: Credit Suisse/Tremont *3-month moving average rate of return for Credit Suisse/Tremont Hedge Fund Index

(21) Haircuts Paid by Hedge Funds Increase for All Collateral TypesJuly 30, 2008 October 21, 2008

Source: Survey of 11 Hedge Funds

COLLATERAL Date Average High Low Average High Low Average High Low21-Oct 1.5% 3.0% 0.0% 1.5% 3.0% 0.0% 1.5% 3.0% 0.0%26-Sep 0.9% 2.0% 0.0% 0.9% 2.0% 0.0% 1.1% 2.0% 0.0%17-Sep 0.6% 2.0% 0.0% 0.6% 2.0% 0.0% 0.7% 2.0% 0.0%30-Jul 0.6% 2.0% 0.0% 0.6% 2.0% 0.0% 0.7% 2.0% 0.0%21-Oct 3.1% 5.0% 1.5% 3.3% 5.0% 1.5% 3.0% 5.0% 1.5%26-Sep 2.3% 5.0% 0.0% 2.3% 5.0% 0.0% 2.0% 5.0% 0.0%17-Sep 1.6% 3.5% 0.0% 1.7% 3.5% 0.0% 2.6% 5.0% 0.0%30-Jul 1.4% 3.0% 0.0% 2.3% 7.5% 0.0% 2.1% 5.0% 0.0%21-Oct 6% 10% 5% 7% 10% 5% 6% 10% 5%26-Sep 5% 6% 4% 5% 6% 4% 5% 6% 4%17-Sep 5% 6% 4% 5% 6% 5% 6% 6% 6%30-Jul 4% 6% 4% 5% 8% 4% 5% 7% 4%

Non-agency MBS21-Oct 29% 33% 25%26-Sep 35% 45% 28%17-Sep 23% 23% 23%30-Jul 26% 45% 20%21-Oct26-Sep17-Sep 30% 30% 30%30-Jul 29% 30% 28%

Corporate Debt21-Oct 21% 25% 15% 19% 23% 15%26-Sep 20% 28% 13% 20% 28% 13%17-Sep 8% 9% 8% 8% 9% 8% 8% 9% 8%12-May 13% 25% 6% 14% 25% 8% 14% 25% 9%21-Oct 40% 60% 25% 38% 60% 25%26-Sep 41% 60% 18% 41% 60% 18%17-Sep 20% 23% 18% 20% 23% 18% 20% 23% 18%12-May 28% 70% 13% 30% 70% 13% 32% 70% 14%

High Yield

Treasury

Agency Debt

Agency MBS

MaturityOvernight 1-Month 3-Month

Prime

Alt-A

High Grade

Page 9 of 12

-4

-3

-2

-1

0

1

01/01/08 02/01/08 03/01/08 04/01/08 05/01/08 06/01/08 07/01/08 08/01/08 09/01/08 10/01/08

Percent

-4

-3

-2

-1

0

1Percent



Source: Bloomberg

(22) Fed Funds Futures Curve Shifts Lower

Source: Bloomberg

(23) Eurodollar Futures Curves Shifts Lower

0.751.001.251.501.752.002.252.502.753.00

Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09Fed Funds Futures Contracts

Percent

0.751.001.251.501.752.002.252.502.753.00

Percent

8/4/2008 9/15/2008 10/24/2008

2.00

2.50

3.00

3.50

4.00

4.50

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10Eurodollar Futures Contracts

Percent

2.00

2.50

3.00

3.50

4.00

4.50 Percent

8/4/2008 9/15/2008 10/24/2008

Page 10 of 12



Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009

Source: Dealer Policy Survey

(24) Distribution of Expected Policy Target Rate Among Primary Dealers Prior to October 29 FOMC Meeting

-0.50.0

0.51.01.5

2.02.5

3.03.5

Percent

Survey Response-size indicates freq

October Average Forecast

Market Rates as of 10/20

(25) Distribution of Expected Policy Target Rate Among Primary Dealers Prior to September 16 FOMC Meeting

Source: Dealer Policy Survey

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Percent

Survey Response-size indicates freq

September Average Forecast

Market Rates as of 9/8

Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009

Page 11 of 12



(27) TIPS Implied Average Rate of Inflation: 5-10 Year HorizonJanuary 1, 2008 October 24, 2008

Source: Federal Reserve Board, Barclays Capital

(26) Spread Between Nominal and Inflation Protected Treasury Yields Narrows SharplyJanuary 1, 2008 October 24, 2008

-50

0

50

100

150

200

250

300

01/01/08 03/01/08 05/01/08 07/01/08 09/01/08

BPS

-50

0

50

100

150

200

250

300 BPS

5-Year

10-Year

Source: Bloomberg

1.251.501.752.002.252.502.753.003.253.50

01/01/08 03/01/08 05/01/08 07/01/08 09/01/08

Percent

1.251.501.752.002.252.502.753.003.253.50

Percent

BarclaysFederal Reserve Board

Page 12 of 12

(28) Expectations for Average Annual CPI Inflation Rate from 2013-2018*

05

1015202530354045

1.5% 1.51-2.0% 2.01-2.5% 2.51-3.0% 3.01%Probability Buckets

Percent

051015202530354045

Percent

Current Survey

Previous Survey

Source: Federal Reserve Bank of New York*Average expectation among respondents of FRBNYs survey of primary dealers


Appendix 2: Materials used by Mr. Bassett


Class II FOMC Restricted (FR) Material for

Staff Presentation on Financial Developments October 28, 2008


July Oct. Jan. Apr. July Oct.2007 2008

0

50

100

150

200

250

300

350

400Basis points

Bank holding companiesRegional banksInsurance companies

Daily

Median CDS spreads of financial institutions

Note: Median spreads for 6 bank holding companies; 6 regional banks; and 59 insurance companies. Source: Markit.

Sept.FOMC

Oct. 27


0

10

20

30

40

50

60Basis points

Investment-grade financial companies

Daily

Average range of CDS dealer contributions

Source: Markit.

Sept.FOMC

Oct. 27


0

1

2

3

4

5Percent of price

Investment-gradeHigh-yield

Oct. 27

Median bid-asked spreads on corporate bonds

5-day moving average Sept.FOMC

Source: Calculated using data from Merrill Lynch.

50

100

150

200

250

300

350

400


60

70

80

90

100

110Basis points Percent of par

Bid-asked spread (left scale)Bid price (right scale)

Daily

Oct. 27

Source: LSTA/LPC Mark-to-Market Pricing.

Secondary market pricing for syndicated loans

Sept.FOMC

May June July Aug. Sept. Oct.2008

0

2

4

6

8

10Percent

7-day SIFMA* Swap Index20-year general obligation

Oct. 22

Oct. 23

Municipal bond yields

* Securities Industry and Financial Markets Association. Source: Bloomberg; The Bond Buyer.

Sept.FOMC

Weekly

0

5

10

15

20

25

30

35

40

45

50$ Billions

May June July Aug. Sept. Oct.

Short-term Long-term

Monthly rate

Municipal bond issuance

Source: Securities Data Company; The Bond Buyer.

1 -15

16 -30

1 -15

16 -23

Exhibit 1Market Functioning

Class II FOMC - Restricted (FR) 10/28/2008October 2829, 2008 175 of 206Authorized for Public Release

Exhibit 2Financial Intermediation

Class II FOMC - Restricted (FR) 10/28/2008

-150

-100

-50

0

50

100$ Billions

9/12 9/19 9/26 10/03 10/10 10/17 10/24

Prime funds Government funds Total

Treasury and Fed announcements

Daily

Net flows of taxable money market funds

Source: iMoneyNet.

600

700

800

900

1000

1100

1200

1300

Aug. Oct. Dec. Feb. Apr. June Aug. Oct.2007 2008

0

100

200

300

400$ Billions $ Billions

Financial (left scale)Asset backed (left scale)Nonfinancial (right scale)

Daily (n.s.a)

Commercial paper outstanding in the U.S. market

Sept.FOMC

Oct. 27

Source: Depository Trust Corporation.


40 50

60

70 80

90100

110

120130

140December 31, 2007=100

Daily

Stock price indexes

S&P 500

S&P Financials

Source: Bloomberg.

Sept.FOMC

Oct. 27

-80

-60

-40

-20

0

20

40

60$ Billions

H1 H2 Q1 Q2 Jul. Aug. Sept.

Equity and hybrid Bond

Monthly rate

Net flows into bond and stock mutual funds

2007 2008e Estimated. Source: Investment Company Institute.

e

H1 Q3 Sept. Oct.

1. Total M2 7.2 3.6 15.6 17.1

2. Liquid deposits 7.4 3.7 20.1 1.0

3. Retail money funds 22.4 -5.5 -0.5 44.6

4. Small time -1.4 9.3 17.6 52.8

5. Currency 0.9 6.8 6.7 20.5

Growth in selected components of M2 in 2008

Percent (s.a.a.r.)

e Estimated.Source: Federal Reserve.

e

1200

1300

1400

1500

1600

1700

1800


350

400

450

500

550

600

650$ Billions $ BillionsWeekly (s.a.)

Commercial bank lending to businesses

Other loans*(right scale)

C&I loans(left scale)

* Includes fed funds and RPs with entities other than banks and dealers and loans n.e.c.; the latter includes loans to nonbank financial institutions, banks abroad, and foreign governments. Source: Calculated using data from Federal Reserves H.8 release.

Oct. 15


Exhibit 3October 2008 Senior Loan Officer Opinion Survey


1990 1993 1996 1999 2002 2005 2008-75

-50

-25

0

25

50

75

100Net percentage tightening

StandardsSpreads

Oct.Quarterly

Changes in standards and terms for C&I loans

Nearly all banks tightened in response toa less favorable economic outlook and areduced tolerance for risk.

About 40 percent of domestic bankstightened because of concerns aboutcapital or liquidity.

Reasons for tightening credit conditions

1990 1993 1996 1999 2002 2005 2008-75

-50

-25

0

25

50

75


Oct.Quarterly

Changes in standards for CRE loans

1990 1993 1996 1999 2002 2005 2008-75

-50

-25

0

25

50

75


AllPrimeNontraditional

Oct.

Quarterly

Changes in standards for residential mortgages

1996 1998 2000 2002 2004 2006 2008-75

-50

-25

0

25

50

75


Home equityCredit cardOther consumer

Quarterly

Changes in standards for consumer loans

Oct.

25 percent reported reducing limits forprime customers.

60 percent reported cutting limits fornonprime borrowers.

Most important reasons were the lessfavorable economic outlook, reducedtolerance for risk, and the credit quality ofindividual customers.

Reductions in existing credit card limits


Exhibit 4Business Finance



0

200

400

600

800

1000

1200Basis points

FinancialNonfinancial

Daily

Spreads on BBB-rated corporate bonds

Source: Merrill Lynch.

Sept.FOMC

Oct. 27

Date InvestmentGrade

HighYield

Financial

1. 2007 17.5 7.5 151.7

2. 2008H1 24.9 3.1 66.0

3. 2008Q3 10.5 0.7 16.9

4. Oct. 13.3 0.0 2.1

Gross issuance of corporate bonds(Billions of dollars, monthly rate)

Nonfinancial

p Preliminary: Issuance through October 23.Source: Securities Data Company.

p


0

100

200

300

400

500

600

700

Basis points

Weekly

10-year AAA CMBS spreads over swaps

Source: JPMorgan.

Oct. 24

Sept.FOMC S&P 500 earnings are expected to come

in about 10 percent below year-agolevels.

BHCs reported substantial writedownsand loss provisions necessitated by awidespread deterioration in credit quality.

Earnings of nonfinancial companies areprojected to rise about 12 percent.

2008Q3 corporate earnings

2002 2004 2006 2008-15

-10

-5

0

5Percent

Note: Index is a weighted average of the percent change in theconsensus forecasts of current-year and following-year EPSfor a fixed sample.Source: Thomson Financial.

FinancialNonfinancial

Oct.

Monthly

Revisions to analysts earnings expectationsfor S&P 500

1984 1988 1992 1996 2000 2004 2008

0

2

4

6

8

10

12Percentage points

Note: The ratio of trend earnings to price for S&P 500 firmsless the real perpetuity Treasury yield.

Oct.

Equity premium

Monthly


Exhibit 5 -Last ExhibitHousehold Finance



4.5

5.0

5.5

6.0

6.5

7.0

7.5Percent

Oct. 22

Weekly

Rate on conforming residential mortgages

Source: Freddie Mac.

Sept.FOMC

2000 2002 2004 2006 2008 2010

-5

0

5

10

15

20Percent

2000 2002 2004 2006 2008 2010

-5

0

5

10

15

20Percent

Quarterly (s.a.a.r.)

Change in house prices and mortgage debt

Source: Flow of Funds Accounts and staff projections.

OFHEO house prices

Mortgage debt


0

50

100

150

200

250

300

350

400Basis points

Credit cardsAutos

Weekly

Spreads on auto and credit card ABS

Note: Spread of the interest rate on AAA-rated 2-year ABS over the2-year swap rate.Source: Citigroup Global Markets.

Sept.FOMC

Oct. 17

0

5

10

15

20

25

30$ Billions

Q1 Q2 Q3 Q4 Q1 Q2 Q3

Autos Credit cards

Monthly rate

ABS issuance

p Preliminary: Issuance through October 17.Source: Citigroup Global Markets.

2007 2008

Oct.p

2000 2002 2004 2006 2008 2010 -2

0

2

4

6

8

10

12

14Percent

2000 2002 2004 2006 2008 2010 -2

0

2

4

6

8

10

12

14Percent

Quarterly (s.a.a.r.)

Change in consumer credit

Source: Flow of Funds Accounts and staff projections.

Despite modest improvement recently,pressures on financial firms and marketshave increased.

Those pressures led to concerns aboutthe economic outlook and reducedtolerance for risk.

The fall in asset prices and tightening ofcredit conditions have had substantialadverse effects.

Summary


Appendix 3: Materials used by Mr. Morin


Appendix 4: Materials used by Ms. Kole


Class II FOMC Restricted (FR) Material for

Staff Presentation on The International Outlook October 28, 2008


Class II FOMC -- Restricted (FR) Exhibit 1 10-28-08

Global Financial Developments

2007 200840

60

80

100

120

140160

(Weekly Data)

S&P500

Nikkei

DJ Euro Stoxx

FTSE 350

FOMC

Equity Prices Advanced Economies

Index, Jan. 5, 2007 = 100

2007 200840

60

80

100

120

140160

Emerging Asia MSCI

LatinAmerican MSCI

FOMC

Emerging MarketsIndex, Jan. 5, 2007 = 100

2007 20080

100

200

300

400

500

600

US UKEuro-Area

Japan

FOMC

Credit Spreads 10-year BBB Corporate

Basis points

0

200

400

600

800

1000

1200

Jun Jul Aug Sep Oct

BrazilHungary

KoreaMexico

Russia

2008

FOMC

Credit Default SwapsBasis points

2007 200890

100

110

120

130

140

85

90

95

100

105

*An increase indicates a rise in the value of the dollar.

Other ImportantTrading Partners

Major CurrenciesIndex

Yen

FOMC

Exchange Rates Dollar* Yen/$ Index, Jan. 5, 2007 = 100

2007 200860

80

100

120

140

*An increase indicates a rise in the foreign currency against the dollar and other currencies.

Brazil

Korea

Mexico

RussiaHungary

FOMC

Nominal Effective*Index, Jan. 5, 2007 = 100



Financial Turmoil and Policy Measures for Countering It

-250

-200

-150

-100

-50

0

50

100

Apr May Jun Jul Aug Sep Oct

Equity Funds,cumulative from April 1

FOMC

Flows into Global Emerging Market FundsBillions of US dollars

150

300

450

600

0

100

200

300

2006 2007 2008

Russia

Korea

Brazil

Mexico

Foreign ReservesBillions of US dollars

Some central banks have injected massive amounts of liquidity and many have cut rates and/orreserve requirements including:

US, ECB, UK, Canada, Switzerland, Sweden, Norway, Australia, New Zealand, China,Hong Kong, Taiwan, Korea, Singapore, India, and Brazil.

Governments have guaranteed bank deposits and new debt.

Public capital injections into banks.

Swap lines have been expanded and new ones are being negotiated.

Hungary, Ukraine, Iceland, and Pakistan have approached the IMF for a loan.

Banking System Support and Financial Stability Measures

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Sep Dec Mar Jun Sep Dec*Allowing for term premiums.

UK

Euro Area

2008 2009

9/1610/27

Implied OIS Forward Rates*Percent

60

100

140

180

220

260

300

1st 15th 29th 13th

Source: Markit.

Europe ex UK

UK

US

September October

FOMC

CDS Premiums - BanksBasis points

0

1

2

3

4

5

6

7

2006 2008 2010Note: Shading represents beginning ofstaff forecast.

UK

Euro Area

Canada

Japan

Policy RatesPercent



The Foreign Outlook

20

40

60

80100120140160180200

2007 2008

European Union

Korea

China

Mexico

Singapore

Export ValueBillions of US dollars

90

100

110

120

2007 2008

Germany

Japan

Canada

Export VolumeIndex, Jan. 2007 = 100

-6

-4

-2

0

2

4

6

2007 2008

Euro Area

Japan

United Kingdom

Industrial Production12-month percent change

0

2

4

6

8

10

2007 2008 2009 2010

Latin America

Emerging Asia

AdvancedForeign Economies

Headline CPIPercent change from year earlier

2007 2008 2009 2010100

120

140

160

180

40

60

80

100

120

140

WTI oil price

IMF non-fuelcommodity index

Commodity Prices Index, Jan. 2007 = 100 $/barrel

Real GDP Outlook* Percent change, a.r.**

2007 2008 2009p 2010pH1 Q3 Q4

1. Total 4.2 1.7 0.5 0.5 1.3 2.92. September Greenbook 4.2 1.7 1.8 2.0 3.0 3.5

3. Advanced Foreign Economies 2.5 0.3 -0.4 -0.7 0.3 1.84. United Kingdom 2.9 0.6 -2.1 -1.5 0.3 2.35. Euro Area 2.1 1.0 -0.3 -0.9 -0.0 1.66. Japan 1.4 -0.1 -0.2 -0.9 0.4 1.37. Canada 2.8 -0.2 -0.3 -0.5 0.3 1.8

8. Emerging Market Economies 6.4 3.5 1.6 2.1 2.7 4.39. Emerging Asia 7.8 5.6 2.3 3.7 4.4 5.910. China 11.3 10.8 4.3 8.9 8.3 9.011. Latin America 4.9 1.1 0.5 0.1 0.7 2.612. Mexico 4.2 0.1 -0.5 -0.6 -0.1 2.2*GDP aggregates weighted by shares of U.S. merchandise exports.**Annualized percent change from final quarter of preceding period to final quarter of period indicated.


Class II FOMC -- Restricted (FR) Exhibit 4 October 28, 2008

Europe

-20

20

60

100

140

180

220

260

Aug Sep Oct

Use of ECB Standing FacilitiesBillions of euros

DailyMarginal Lending FacilityDeposit Facility

0

5

10

15

20

25

2006 2007 2008

United Kingdom Loans*Quarterly percent change, a.r.

NonfinancialCorporations

Households

*Q3 data is staff estimate.

-10

0

10

20

30

40

50

60

Q2 Q3 Q4 Q1 Q2 Q3 Q4

Bank of England Credit Conditions SurveyPercent balance of opinion, + = reduced availability

HouseholdCorporate

2007 2008*

*Q4 expectations formed in early September.

-15

-10

-5

0

5

10

15

20

2006 2007 2008

House PricesPercent change from year earlier

UK

Ireland

FranceSpain

0

5

10

15

20

25

2006 2007 2008

Euro Area LoansQuarterly percent change, a.r.

NonfinancialCorporations

Households

40

45

50

55

60

65

2006 2007 2008

Total Economy PMIs50+ = expansion

Euro Area*

UK

*Dot represents October flash estimate.

80

85

90

95

100

105

110

115

2006 2007 2008-40

-30

-20

-10

0

10

20

30

Business Climate SurveysPercent balance Index, Jan. 2006 = 100

Germany

Euro Area

UK

4

6

8

10

12

2006 2007 2008

Unemployment RatePercent

UK

Ireland

Euro Area

France

Spain



The Rest of the World

-20

-15

-10

-5

0

5

10

80

85

90

95

100

105

110

2006 2007 2008*Business confidence index forecast for all industries.

Shipments

Tankan*

Job Offers/Applicants

Japan Percent Index, Jan. 2006 = 100

0

10

20

30

40

2006 2007 2008*Both series are nominal.

Investment inFixed Assets*

Retail Sales*

China12-month percent change

45

50

55

60

2006 2007 2008*PMIs.

Brazil*

Singapore

China*

Export Orders50+ = Expansion

-10

-5

0

5

10

15

20

25

30

2006 2007 2008

China

Korea

Taiwan

Industrial Production12-month percent change

45

50

55

60

2006 2007 2008Source: Markit.

Output

New Orders

Global PMI50+ = Expansion

-50

-40

-30

-20

-10

0

10

20

30

40

50

2006 2007 2008

Auto Exports

RemittancesIndustrial Production

Mexico12-month percent change


Class II FOMC -- Restricted (FR) Exhibit 6 (Last) 10-28-08U.S. External Outlook

-4

-2

0

2

4

6

8

10

2000 2005 2010* Aggregates weighted by shares of U.S. exports.

Totalforeign

Advanced foreign

Emerging markets

United States

Real GDP*4-quarter percent change

75

85

95

105

115

2000 2005 2010

Sept. GB

Broad Real Exchange Value of the U.S. DollarIndex, 2000 = 100

-8

-6

-4

-2

0

2

4

1980 1985 1990 1995 2000 2005 2010

Non-oil trade balance

Current account balance

Oilimports

U.S. Trade and Current Account BalancesPercent of GDP

2007 2008 2009p 2010p H1 Q3e Q4p

1. Net Exports 0.8 1.8 1.2 0.4 0.2 -0.2 2. September Greenbook 0.8 1.9 0.7 1.0 0.3 -0.1 Growth Rates (Percent, a.r.) 3. Exports 8.9 8.6 8.0 2.6 2.8 3.9 4. September Greenbook 8.9 9.1 4.0 7.2 5.6 5.1 5. Imports 1.1 -4.1 -1.0 -0.3 0.9 4.3 6. September Greenbook 1.1 -4.2 -0.8 -0.3 2.8 4.9

Trade in Real Goods and Services*

*Years are Q4/Q4. Half year is Q2/Q4.

Contribution to Real GDP Growth (Percentage points, a.r.)


Appendix 5: Materials used by Mr. Madigan


Class I FOMC Restricted Controlled (FR)

Material for Briefing on FOMC Participants Economic Projections

Brian Madigan October 29, 2008


Exhibit 1: Economic Projections of Federal Reserve Governors and Reserve Bank Presidents for 2008

Real GDP Growth

2008 2008:H2

Central Tendency 0.0 to 0.3 -1.8 to -1.2 June projections 1.0 to 1.6 0.6 to 2.1 Range -0.3 to 0.5 -2.4 to -0.8 June projections 0.9 to 1.8 0.4 to 2.2

Memo: Greenbook 0.3 -1.2 June Greenbook 1.0 0.7

Unemployment Rate

2008

Central Tendency 6.3 to 6.5 June projections 5.5 to 5.7 Range 6.3 to 6.6 June projections 5.5 to 5.8

Memo: Greenbook 6.3 June Greenbook 5.6

PCE Inflation

2008 2008:H2

Central Tendency 2.8 to 3.1 1.6 to 2.3 June projections 3.8 to 4.2 3.6 to 4.6 Range 2.7 to 3.6 1.4 to 3.3 June projections 3.4 to 4.6 3.2 to 4.8

Memo: Greenbook 2.8 1.6 June Greenbook 4.2 4.5

Core PCE Inflation

2008 2008:H2

Central Tendency 2.3 to 2.5 2.4 to 2.8 June projections 2.2 to 2.4 2.3 to 2.5 Range 2.1 to 2.5 2.0 to 2.8 June projections 2.0 to 2.5 2.0 to 2.6

Memo: Greenbook 2.4 2.6 June Greenbook 2.3 2.5


Exhibit 2: Economic Projections of Federal Reserve Governors and Reserve Bank Presidents for 2009-2011

Real GDP Growth

2009 2010 2011

Central Tendency -0.2 to 1.1 2.3 to 3.2 2.8 to 3.6 June projections 2.0 to 2.8 2.5 to 3.0 ---- Range -1.0 to 1.8 1.0 to 4.5 2.0 to 5.0 June projections 1.9 to 3.0 2.0 to 3.5 ----

Memo: Greenbook -0.1 2.3 4.5 June Greenbook 2.4 3.1 ----

Unemployment Rate

2009 2010 2011

Central Tendency 7.1 to 7.6 6.5 to 7.3 5.5 to 6.6 June projections 5.3 to 5.8 5.0 to 5.6 ---- Range 6.6 to 8.0 5.5 to 8.2 4.9 to 7.4 June projections 5.2 to 6.1 5.0 to 5.8 ----

Memo: Greenbook 7.2 7.2 6.4 June Greenbook 5.6 5.4 ----

PCE Inflation

2009 2010 2011



Core PCE Inflation

2009 2010 2011




Exhibit 3: Risks and Uncertainty in Economic Projections

Uncertainty about GDP Growth Risks to GDP Growth

0

4

8

12

16

Lower Similar Higher

JuneOctober

0

4

8

12

16

Downside Balanced Upside

Uncertainty about PCE Inflation Risks to PCE Inflation

0

4

8

12

16

Lower Similar Higher

JuneOctober

0

4

8

12

16

Downside Balanced Upside


Exhibit 4: Trial Run of Longer-Term Economic Projections

Central Tendency Range

Real GDP Growth 2.5 to 2.7 2.0 to 2.9

Unemployment Rate

4.8 to 5.0 4.5 to 5.8

PCE Inflation 1.7 to 1.8 1.5 to 2.0

Memo: Oct. 2007 projections for 2010

Real GDP Growth 2.5 to 2.6 2.2 to 2.7

Unemployment Rate 4.7 to 4.9 4.6 to 5.0 PCE Inflation 1.6 to 1.9 1.5 to 2.0


Appendix 6: Materials used by Mr. Stockton


Orders and Shipments of Durable Goods(Percent change from comparable previous period,

seasonally adjusted)

2008 2008

Category Q1 Q2 Q3 July Aug.r Sept.a

Annual rate Monthly rate

Nondefense capital goodsOrders -5.6 -6.8 -11.6 3.5 -7.7 .8 Aircraft -46.7 -72.0 -66.0 39.2 -52.2 38.3 Excluding aircraft 4.7 10.2 -2.4 .3 -2.2 -1.4 Computers and peripherals -1.7 -5.3 -36.9 -13.1 .7 -2.8 Communications equipment .6 .2 21.6 12.4 1.7 -16.5 All other 5.7 12.9 -.5 .6 -2.8 .3

Shipments -.1 3.4 -.3 1.2 -3.3 1.5 Aircraft 4.4 -24.2 -5.2 14.7 -17.4 -5.1 Excluding aircraft -.4 5.9 .1 .3 -2.1 2.0 Computers and peripherals -5.8 -19.0 -26.7 -4.8 -3.7 .8 Communications equipment 2.6 5.8 -9.2 -3.0 -7.6 2.0 All other -.1 8.8 4.0 1.1 -1.4 2.1

Supplementary orders seriesDurable goods -5.8 -1.0 -7.0 .7 -5.5 .8 Real adjusted durable goods -1.5 .3 -13.2 -.3 -4.6 -2.4Capital goods -4.0 -1.4 -8.7 .4 -6.0 3.2 Nondefense -5.6 -6.8 -11.6 3.5 -7.7 .8 Defense 10.2 53.9 14.7 -19.6 8.4 19.6

r Revised. a Advance. Source: Census Bureau.

2000 2002 2004 2006 20084

5

6

7

8

9

10

11

12

4

5

6

7

8

9

10

11

12

Computers and Peripherals

Billions of dollars, ratio scale

Sept.

ShipmentsOrders

Source: Census Bureau.

2000 2002 2004 2006 20082

4

6

8

10

12

14

16

2

4

6

8

10

12

14

16

Communications Equipment



2000 2002 2004 2006 200834

36

38

40

42

44

46

48

50

52

54

56

34

36

38

40

42

44

46

48

50

52

54

56

Other (non-high-tech, nontransportation)




Appendix 7: Materials used by Mr. Madigan


Class I FOMC Restricted Controlled (FR)

Material for FOMC Briefing on Monetary Policy Alternatives Brian Madigan October 29, 2008


Table 1: Alternative Language for the October 29 FOMC Announcement October 27, 2008

October 8 Statement Alternative A Alternative B Alternative C

Policy Decision

1. The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1 percent.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 1 percent.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 1 percent.

2. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures. Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

Reflecting in part the intensification of financial market turmoil, the outlook for economic activity has weakened. Consumer spending and industrial production have declined in recent months. However, policy actions taken in recent weeks, including coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.

Rationale

3. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Inflation has been high, but the Committee believes that the declines in the prices of energy and other commodities and the weaker prospects for economic activity have reduced the upside risks to inflation.

Assessment of Risk

4. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Recent policy actions, including todays rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Policy actions taken in recent weeks, including coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, the predominant concern of the Committee is the downside risks to growth. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

In these circumstances, the Committees primary concern is the downside risks to growth. The Committee will monitor economic and financial developments carefully in light of the recent policy actions and will act as needed to promote sustainable economic growth and price stability.


Appendix 8: Materials used by Mr. Bullard



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