fomc 20070628 material

Appendix 1: Materials used by Mr. Dudley

June 27-28, 2007 219 of 261Authorized for Public Release

Class II FOMC - Restricted FR Page 1 of6

Percent

5.50 (1) Treasury Yield Curve Shifts Higher Percent

5.50

-+- 3/20/2007 5/8/2007 __...,.. 6/25/2007 5.25 5.25

5.00 5.00 ~ --lr-__.___...... __ _........ --~· ~--::--...-- .

4.75

4.50

~ : 4.75 • • 4.50

4.25 1-Year 2-Year 3-Year 5-Year 7-Year

Source: Bloomberg Years to lVhturity

Percent

3.25

3.00

2.75

2.50

2.25

2.00 01/01/07

(2) 10-Year Treasury Inflation Protected and Nominal Treasury Yields January 1, 2007- June 25, 2007

TIPS - Nominal

02/01107 03/01107 04/01107 05/01107 06/01107

Source: Bloomberg

Percent (3) TIPS Inflation Compensation: 5-10 Year Horizon

June 1, 2006- June 25, 2007

10-Year 4.25

Percent

5.50

5.25

5.00

4 .75

4.50

4.25

Percent

3.00 3.00

2.80 2.80

~ ,..J~ {\ \

2.60 \r

2.40

2.20 06/01/06 09/01/06

Source: Federal Reserve Board

rA~

J~

12/01106

~~ 2.60

\.- ·""'-. rl ~ ./ .;

[ , r

2.40

2.20 03/01 /07 06/01 /07


Class II FOMC -- Restricted FR

Percent (4) Eurodollar Futures Curve Flattens 5.50

~3/20/2007 5/8/2007 -A- 6/25/2007

5.30

• • * 5.10

4.90

4.70

4.50 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08

Source: Bloomberg Eurodollar Futures Contracts

Percent (5) Distribution of Expected Policy Target Among Primary Dealers Prior to

Ma 9 FOMC Meetin 6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

0 Surwy Response -size indicates freq

0 May Average Forecast

- Market Rates as of 5/1

Q2 2007 Q3 2007 Q4 2007

Source: Dealer Policy Survey

0 0

Ql 2008

8 8 8

~-8-! 0

0 0 0 0 0

Q2 2008 Q3 2008 Q4 2008

Percent (6) Distribution of Expected Policy Target Among Primary Dealers Prior to

June 28 FOMC Meeting 6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

0 Surwy Response -size indicates freq

0 June Average Forecast

- Market Rates as of 6/18

Q2 2007 Q3 2007


8 8 8

~if Q4 2007 Ql 2008 Q2 2008 Q3 2008 Q4 2008

Page 2 of6

Percent

5.50

5.30

5.10

4.90

4.70

4.50


Class II FOMC - Restricted FR Page 3 of6

P (7) Primary Dealers' GDP Forecasts #of (8) Reduced Uncertainty Regarding GDP

ercent 5

Dealers Forecasts 15 .---------~~~~----------~

4

3

2

1 <> Average

- Previous Survey Average 0

12

9

6

3

0

D Oment Survey

• Previous Survey

Q207 Q307 Q407 Q108 Q407/Q408 less Uncertain Equally Uncertain More Uncertain


$Billions 700

(9) 30-Year Conventional Mortgage-Backed Security Coupon Stack As of June 25, 2007

600

500

400

300

200

100

0

f-

f-

f-

-

~

11

. Mortgage RatC:: Current Mortgage Rate:

on May 30:: 6.60% 6.31 o/~

-

.....--

.., --4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00

Source: Bloomberg

BPS

25

(10) Mortgage Convexity Hedging Drives Up 10-Year Treasury Yields

2-Year

20 • s-Year

• to-Year

15 • 30-Year

10

5

0 5/ 10-5/16

Source: Bloomberg

2007 - June 13 2007

5117-5/23 5/24-5/30 5/31-6/6

8.50

$Billions

700

-

600

500

400

300

200

100

0

6/7-6/13


Class II FOMC- Restricted FR

Billion

1250 (11) Custody Holdings of Treasury Securities at FRBNY Level Off Since Mid-April

1225

1200

1175

1150 01/01107 02/01/07 03/01/07

Source: Federal Reserve Bank ofNew York

04/01/07 05/01/07 06/01/07

Page 4 of6

Billion

1250

1225

1200

1175

1150

Index to 100 on 111

110

(12) Ripple Effects in U.S. Equity Market were Modest Janua 1, 2007- June 25, 2007

Index to 100 on 111

108

106

104

102

100

98

- S&P500

- Nasdaq

96 01 /01/07 02/01 /07

BPS 175

150

125

100

75

Source: Bloomberg

lm estment Grade ( LHS)

50 01/01107 02/01/07

Source: Bloomberg

: Feb 27

:.....-

.

03/01107 04/01 /07 05/01/07

(13) Corporate Debt Spreads January 1, 2007- June 25, 2007

06/01/07

High-Yield (RHS)

03/01/07 04/01/07 05/01/07 06/01/07

110

108

106

104

102

100

98

96

BPS 325

300

275

250

225

200


Class II FOMC- Restricted FR

Percent (14) Currency Performance Against the Japanese Yen 5

4

3

2

1

0

-1

Feb27- Mlr 15

• June 1-25

EUR

Source: Bloomberg

Value/BPS 90

75

60

45

30

15

0 01 /01107 02/01 /07

Source: Bloomberg

USD NZD

(15) Implied Volatility Low, Except for Treasuries January 1, 2007- June 25, 2007

03/01 /07 04/01/07 05/01107

Page 5 of8

AUD

Value/BPS

30

20

10

0 06/01107

BPS 110

(16) September 2008 Eurodollar, Euribor, and Euroyen Interest Rate Futures Contracts January 1, 2007- June 25, 2007 BPS

410

90

50

30 01/01/07

,.

02/01/07

Source: Bloomberg 03/01107 04/01107

- Euromllar-Euribor (LHS)

Eurodlllar-Euroyen (RHS) ,. t( 390

I" •

370

350

330 05/01/07 06/01/07


Class II FOMC - Restricted FR

Index to 100 on 111

104

102

100

98

96

94 01/01/07 02/01/07

Source: Bloomberg

Yen/$

150

130

110

90

(17) Dollar Strengthens Janua 1, 2007- June 25, 2007

03/01/07 04/01/07

(18) Japanese Yen Weakens Januar 1995- Ma 2007

05/01/07

--Japanese Yen (U-IS)

Page6of6

Index to 100 on 111 104

102

100

98

96

94 06/01107

Index to 100 in 2000 120

100

80

60

- Real Trade-Weighted Japanese Yen (RHS) 70

Jan-95 Jan-97 Jan-99 Jan-01

Source: Bloomberg and Bank for International Settlements

Jan-03 Jan-05

BPS

1400

(19)..Subprime BBB-Rated MBS and Related Spreads Widen January 1, 2007- June 25, 2007

- Cash 1200

1000

800

600

400

200

0 01/01/07

ABX 06-2

02/01107

Source: JP Morgan

1 Feb 27 :..-I

03/01/07 04/01/07 05/01/07 06/01/07

40 Jan-07

BPS

1400

1200

1000

800

600

400

200

0


Appendix 2: Materials used by Mr. Wilcox, Ms. Liang, and Mr. Leahy


CLASS II FOMC - Restricted (FR)

Material for

Staff Presentation on the Economic Outlook

June 27, 2007


1 of 14


2 of 14


3 of 14


4 of 14


5 of 14


6 of 14


7 of 14


8 of 14


9 of 14


Class II FOMC -- Restricted (FR) Exhibit 10

Foreign Growth and Domestic Demand

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 20080

1

2

3

4

5

6

7

* Weighted by shares of U.S. merchandise exports.Note: Horizontal line marks 3.5 percent.

Total Foreign*

United States

Annual

Real GDPPercent change, Q4/Q4

2001 2002 2003 2004 2005 20060

1

2

3

4

5

* Weighted by shares of U.S. merchandise exports.

Foreign Final Domestic Demand* Contributions to Q4/Q4 GDP growth, percentage points

2001 2002 2003 2004 2005 200619

20

21

22

23

* Weighted by shares of U.S. merchandise exports.

Quarterly

Foreign Fixed Investment Spending*Percent of nominal GDP

2001 2002 2003 2004 2005 2006 20073

4

5

6

7

8

9

10

Japan

Euro area

Canada

Monthly

Unemployment RatesPercent

2001 2002 2003 2004 2005 2006 2007 200880

160

240

320

400

15

25

35

45

55

65

75

* IMF index, weighted by shares of U.S. merchandise imports.** IMF index, weighted by global export shares.

WTI oil

Non-fuel*

Food**

Monthly

Primary Commodity Prices Index, January 2001 = 100 Dollars per barrel

10 of 14



Foreign Consumer Prices and Primary Commodity Prices

50

700

2004 2006* Index of local currency prices, imported crude oil price = 100 in September 2004, ratio scale.

Price at pump

Gasoline price ex. tax

Imported oil price

100

200

400

Unleaded Gasoline and Imported Crude Oil Prices* Germany

50

700

2004 2006

100

200

400

Japan

50

700

2004 2006

100

200

400

Canada

50

700

2004 2006

100

200

400

United States

* Ratio of percent change in local-currency price of regular unleaded gasoline to percent change in local-currency price of imported crude oil.

Pass-Through of Crude Oil Pricesto Retail Gasoline Prices

September 2004 to March 2007

Pass-Through*

Germany .25

Japan .06

Canada .71

United States .84

90

100

110

120

130

140

150

160

170

2003 2004 2005 2006 2007

CanadaGermany

Japan

United States

Consumer Energy PricesRatio scale, January 2003 = 100

-80

-40

0

40

80

120

160

-10

-5

0

5

10

15

20

2003 2004 2005 2006 2007* Twelve-month change.

Tortillasand cornproducts

Food

Tomatoes

Food Prices in Mexico Percent change* Percent change*

-10

-5

0

5

10

15

20

25

30

-6

-3

0

3

6

9

12

15

18

2003 2004 2005 2006 2007* Twelve-month change.

Food

Meat and poultry

Food Prices in China Percent change* Percent change*

11 of 14



Foreign Inflation: Core, Expectations, and Outlook

-2

0

2

4

6

8

10

12

2001 2002 2003 2004 2005 2006 2007* Staff estimate.

Core Consumer Prices

Brazil

China*Korea

Mexico

Emerging Market EconomiesTwelve-month percent change

-2

-1

0

1

2

3

4

2001 2002 2003 2004 2005 2006 2007

Canada

Euro area

Japan

United Kingdom

Advanced Foreign EconomiesTwelve-month percent change

-2

-1

0

1

2

3

4

5

6

2004 2005 2006 2007 2008

Canada

Euro area

Japan

United Kingdom

Headline Consumer Prices Advanced Foreign Economies

Four-quarter percent change

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007 2008

Brazil

China

Korea

Mexico

Emerging Market EconomiesFour-quarter percent change

* 15-year maturities.

Indexed InflationNominal Real Compen-

Yield Yield sation

Canada* 54 43 11

Euro area 67 65 2

United Kingdom 73 56 17

Japan 19 6 13

United States 40 28 12

Change in Ten-Year Sovereign Bond Yields(12/29/06 - 6/26/07, basis points)

* Expectations for inflation in years 2013 to 2017.Source: Consensus Economics Surveys.

For 2007 as of: Long-run*as of

Dec. 06 Jun. 07 Apr. 07

Canada 1.7 2.2 2.0

Euro area 2.1 2.0 1.9

United Kingdom 2.2 2.4 1.9

Japan 0.3 0.0 1.2

United States 2.0 2.6 2.1

Headline Inflation Expectations(Percent, year-average over year-average)

12 of 14



What Explains the Improved Outlook for External Adjustment?

-1200

-1000

-800

-600

-400

2002 2003 2004 2005 2006 2007 2008

(Part 1)

May 2006Greenbook

Current Account BalanceBillions of dollars, annual rate

-1200

-1000

-800

-600

-400

2002 2003 2004 2005 2006 2007 2008

May 2006Greenbook

Trade BalanceBillions of dollars, annual rate

90

100

110

120

130

2002 2003 2004 2005 2006 2007 2008* Weighted by U.S. merchandise export shares.

May 2006Greenbook

Foreign Economic Activity*Index, 2002Q1 = 100

70

80

90

100

110

2002 2003 2004 2005 2006 2007 2008

May 2006Greenbook

Broad Real DollarIndex, 2002Q1 = 100

500

600

700

800

900

2002 2003 2004 2005 2006 2007 2008

ModelForecast

Real Exports of Core GoodsBillions of chained (2000) dollars, annual rate

* Q4/Q4 percent change.

NominalShare

Real Growth*

1. Core Goods 100 10.8

2. Capital Goods 34 12.8

3. Ind. Supplies 29 13.0

4. Automotive 12 3.5

5. Consumer 14 11.5

6. Other 12 7.3

Core Exports in 2006(Percent)

13 of 14



What Explains the Improved Outlook for External Adjustment?

9.5

10.0

10.5

11.0

11.5

12.0

12.5

2002 2003 2004 2005 2006 2007 2008

(Part 2)

May 2006Greenbook

U.S. GDPTrillions of chained (2000) dollars, annual rate

900

1000

1100

1200

1300

1400

1500

2002 2003 2004 2005 2006 2007 2008

May 2006Greenbook

Real Imports of Core GoodsBillions of chained (2000) dollars, annual rate

15

30

45

60

75

2002 2003 2004 2005 2006 2007 2008

May 2006Greenbook

U.S. Oil Import PriceDollars per barrel

-120

-80

-40

0

40

80

120

2002 2003 2004 2005 2006 2007 2008

May 2006Greenbook

Net Investment IncomeBillions of dollars, annual rate

Greenbook

May 2006 June 2007

2006 -.3 .5

2007: Q1 -.5 -.7

Q2 .3 1.0

H2 -.4 .1

2008 -- .0

Contribution of Real Net Exports to U.S. GDP Growth(Percentage points)

14 of 14


Appendix 3: Materials used by Mr. Reinhart


Class I FOMC - Restricted-Controlled (FR)

Material for

FOMC Briefing on Economic Projections of FOMC Participants

Vincent R. Reinhart June 27, 2007


Exhibit 1 Summary of June Trial Run Economic Projections

2007 2008 2009

GDP Growth Central Tendency (2.2 to 2.5) (2.5 to 2.8) (2.6 to 3.0)

(Central tendency of May projections) (2.0 to 2.5) (2.5 to 2.8) (2.5 to 3.0) Range (2.0 to 2.7) (2.5 to 3.0) (2.0 to 3.1)

(Range of May projections) (l.8 to 2.6) (2.4 to 3.0) (2.5 to 3.0)

Unemployment Rate Central Tendency (4.6 to 4.7) (4.7 to 4.8) (4.7 to 5.0)

(Central tendency of May projections) (4.7 to 4.8) (4.7 to 4.9) (4.7 to 5.0) Range (4.6 to 4.8) (4.5 to 5.0) (4.4 to 5.1)

(Range of May projections) (4.5 to 4.9) (4.6 to 5.0) (4.6 to 5.1)

Core PCE Inflation Central Tendency (2.0 to 2.2) (1.8 to 2.0) (1.6 to 2.0)

(Central tendency of May projections) (2.1 to 2.3) (l.8 to 2.1) (l.6 to 2.0) Range (1.9 to 2.2) (1.7 to 2.1) (1.5 to 2.0)

(Range of May projections) (2.0 to 2.3) (l.8 to 2.4) (l.5 to 2.3)

Total CPI Inflation Central Tendency (3.1 to 3.6) (2.1 to 2.3) (2.0 to 2.3)

Range (2.3 to 3.7) (2.0 to 2.5) (1.8 to 2.5)

Page 1 of 6


Exhibit 2 Central Tendency and Range of June Economic Projections

GOP Growth (Q4-to-Q4)

• Actual GOP Growth _ Central Tendency of Projections ::r:: Range of Projections

2002 2003 2004

Civilian Unemployment Rate (Q4Ievel)

• Actual Unemployment Rate _ Central Tendency of Projections ::::r: Range of Projections

•

2002 2003 2004

Core PCE Inflation (Q4-to-Q4)

• Actual Core PCE Inflation _ Central Tendency of Projections ::::r: Range of Projections

_______ a .. ..

2002 2003

Total CPllnfiation (Q4-to-Q4)

• Actual Total CPI Inflation

2004

_ Central Tendency of Projections ::::r: Range of Projections

2002 2003 2004

iiiiiiiiiiiiiii

2005 2006 2007 2008

2005 2006 2007 2008

•

2005 2006 2007 2008

2005 2006 2007 2008

Page 2 of 6

Percent 7

6 5 4

~ 3 2

0 2009

Percent 8

7

6

~ 5

4

3 2009

Percent 4

3

III 2

0 2009

Percent 5

4

3

2

2009


Exhibit 3 Uncertainty and Risks- GOP Growth

2(a): Please indicate your judgment of the uncertainty attached to your projections relative to levels of uncertainty over the past 20 years.

Higher (A)

Broadly similar

(B)

Number of participants

Lower (C)

2(b): Please indicate your judgment of the risk weighting around your projections.

Number of participants

Weighted to Broadly Weighted to upside balanced downside

(A) (B) (C)

Page 3 of 6

14

12

10

8

6

4

2

0

14

12

10

8

6

4

2

0


Exhibit 4 Distribution of Participants' Unemployment Projections: 2007-2009

Distribution of Unemployment Projections: 2007

Current Projection May Projection

4.4 4.5 4.6 4.7



4.4 4.5 4.6 4.7



4.4 4.5 4.6 4.7

'----1 1 1 1 1

1 1

1

Number of Respondents

L ____ I

4.8

4.8

4.8

Page 4 of 6

4.9 5.0 5.1


Greenbook

-----1

4.9

4.9

1 -----1

5.0

1 1

5.1


Greenbook Extension

'----1 1 1 1 1

1

5.0 5.1

10

8

6

4

2

o

10

8

6

4

2

o

10

8

6

4

2

o


Exhibit 5 Distribution of Participants' Core PCE Inflation Projections: 2007-2009

Distribution of Core PCE Inflation Projections: 2007

Current Projection

May Projection

1.5 1.6 1.7 1.8 1.9


Current Projection

May Projection

1.5 1.6 1.7 1.8 1.9


2.0

2.0

Greenbook

2.1 2.2

Greenbook

2.1 2.2


----I 1 1 1

2.3 2.4


2.3 2.4


8 7

6

5

4

3

2

o

8

7

6

5

4

3

2

o

Greenbook Extension 8 Current Projection 7

May Projection 6

1.5 1.6 1.7 1.8 1.9 2.0

Page 5 of6

-I 1 1 I I I

2.1 2.2 2.3 2.4

5

4

3

2

1

o


Exhibit 6 MONETARY POLICY REPORT ECONOMIC PROJECTIONS

2007 PROJECTIONS

Nominal GOP February 2007

Real GOP February 2007

Core PCE Prices February 2007

Unemployment rate February 2007

Nominal GOP February 2007

Real GOP February 2007

Core PCE Prices February 2007

Unemployment rate February 2007

Range

FOMC

Central Tendency

Staff

-------------Percentage change, 04 to 04------------

4~ to 5~ 4~to 5 4.8 (4Y.. to 5'h) (5 to 5'h) (5.0)

2 to 2% 2% to 2~ 2.2 (2% to 3%) (2'h to 3) (2.3)

2 to 2% 2 to 2% 2.0 (2 to 2%) (2 to 2%) (2.2)

--------------Average level, 04, percent---------------

4~to 4% (4'h to 4Y..)

4~to 4% (4'h to 4Y..)

2008 PROJECTIONS

Range

FOMC

Central Tendency

4.7 (4.8)

Staff

-------------Percentage change, 04 to 04------------

4~ to 5~ 4% to 5 4.8 (4Y.. to 5'h) (4Y..to 5%) (4.8)

2~ to 3 2~ to 2% 2.5 (2'h to 3%) (2Y.. to 3) (2.5)

1% to 2 1% to 2 2.0 (1'h to 2%) (1Y.. to 2) (2.0)

--------------Average level, 04, percent---------------

4~to 5 (4'h to 5)

about 4% (4'h to 4Y..)

Page 6 of 6

4.8 (4.9)


Class I FOMC - Restricted Controlled FR

Material for

FOMe Briefing on Monetary Policy Alternatives

Vincent Reinhart

June 27, 2007


Exhibit 1 Financial Market Developments

Expected federal funds rates Percent

5.50

••••••••••••••••••• June 26, 2007

'.

5.25

•••••••• ••••• ~ay 8, 2007 ~------f 5.00

................ '.

...•.•......••.•......................

4.75

4.50

L-.L-..L..--'-...... ..L.....&... ....... ....&......L. ...... .....L.....&---1 ........ L...-L.-L-..L..--'-... 4.25 June Sept. Dec. Mar.

2007

June

2008

Sept. Dec.

Note. Estimated from federal funds and Eurodollar futures, with an allowance for term premiums and other adjustments.

Distribution of primary dealers' federal funds rate forecasts at year·end Number of dealers

_ June survey

May survey

---, I I I I I I I I I

... _____ J

4 4.25 4.5 4.75 5 5.25 5.5 5.75 Percent

Source. FRBNY desk primary dealers' survey

Subprime BBB· mortgage CDS index spreads

Daily

2005:H2* 2006:H1 * 2006:H2*

Sept. Nov.

2006

Jan.

Last FOMe

Basis points

Mar. May

2007

'Corresponds to pools of mortgages originated in that period. Note. Measured relative to Libor. Source: JP Morgan.

14

12

10

8

6

4

2

o

2400

2000

1600

1200

800

400

o

Nominal and inflation indexed treasury yields Percent

6/26/2007 Day before FOMC meeting 5/812007

Inflation indexed

"----------------

3 5 7 10 20 Maturity in Years

Change in selected financial market quotes

May FOMe to Bluebook

Bluebook to Tuesday

Ten·year Treasury

Ten·year Indexed Treasury

S&P 500

·basis points· 54 -6

·basis points· 44 -3

·percent-0.96 -1.92

6

5

4

3

2


Staff Forecast

Real GDP Growth 2007 May June

2.0 ___ 20=.2

Revision 0.2

Core PCE Inflation May June Revision

Equilibrium Real Federal Funds Rate

--- Actual real federal funds rate _ Range of model-based estimates

70 percent confidence interval c::=:=J 90 percent confidence interval - - - - Greenbook-consistent measure

2008 2.4 2.5 0.1

Exhibit 2 Case for Alternative B

2007 04 Target Funds Rate

• Greenbook Assumption Fed Funds Futu res

• •

1/31 3/21

FOMC Dates

Percent

• •

5/9 6/27

Percent

5.50

5.25

5.00

4.75

9

8

7

6

5

4

3

2

o -1

~~ __ -L __ ~ ____ ~ __ ~ __ ~ ____ L-__ ~ __ -L __ ~ ____ L-__ ~ __ ~ ____ L-__ ~ __ -L ____ ~ __ ~~ -2

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

FRB/US Model Simulations of Estimated Outcome-Based Rule

--- Current Bluebook ~ 90 Percent confidence interval _ 70 Percent confidence interval - - - Previous Bluebook

2007 2008 2009 2010 2011

Percent 10

9

8

7

6

5

4

3

2

0 2012

Implied Distribution of Federal Funds Rate Six Months Ahead'

Recent: June 26, 2007 Last FOMC: May 8, 2007

3.25 3.75 4.25 4.75 Target rate

5.25

Percent

5.75

'Estimates from options on Eurodollar futures contracts, adjusted to estimate expectations for the federal funds rate.

40

35

30

25

20

15

10

5

0


1.

Could leave misimpression about jumping

off point

2.

3 .

/ Twelve-month

change in core PCE

is 2 percent

4.

Exhibit 3 Wording of the Statement

May FOMe

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5 114 percent.

Economic growth slowed in the first part of the year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters.

Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Revised Alternative B

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5 1/4 percent.

The economy appears to have grown at a moderate pace during V the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over the coming quarters.

Readings on core inflation have improved modestly in recent

~ months. However, a sustained moderation in inflation has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain inflation pressures.

[Unchanged]

Change make cl

d to ear ging H1 avera

/

Added downwe recent d

V to ight ata

Reverte Mayt

d to o

emphas ize ance anged

policy st hasn't ch

/


75

70

65

60

55

50

Exhibit 4

Tendency Toward Alternative C

Resource utilization Percent

Monthly

Percent 7.0

6.5

6.0

5.5

5.0

4.5

U-______ ~ ________ ~ ______ _L ______ ~ ____ ~ 4.0

2003 2004 2005 2006 2007 'Three-month moving average.

Five year forward inflation compensation Percent

2003 2004 2005 2006

Statement

2. Despite the ongoing adjustment in the housing sector, the economy appears to have grown at a moderate pace so far this year.

2007

3. ' ... in combination with earlier increases in the prices of energy and other commodities .. .'

3.4

3.2

3.0

2.8

2.6

2.4

Tendency Toward Alternative A

Thirty-year fixed rate mortgage rate

Monthly Average

2003 2004 2005

Months' supply of new homes

Percent

2006 2007

Millions of units, annual rate

Monthly

2003 2004 2005 2006 2007 2008 Note. Months' supply uses the two-quarter moving average of sales. Forecast period shaded in blue.

Statement

2. But ongoing weakness in the housing sector implies a significant risk that economic activity might grow more slowly than anticipated.

3. Core inflation has edged lower in recent months and is expected to remain moderate over the next year or so.

4. With this policy action, the Committee judges that the downside risk to economic growth now roughly balances the upside risk to inflation.

7.0

6.5

6.0

5.5

8

7

6

5

4


Class I FOMC - Restricted Controlled (FR) Table 1: Alternative Language for the June 2007 FOMC Announcement REVISED

May FOMC Alternative A Alternative B Alternative C

1. The Federal Open Market The Federal Open Market Committee The Federal Open Market Committee The Federal Open Market

Policy Committee decided today to keep its decided today to lower its target for decided today to keep its target for the Committee decided today to raise its target for the federal funds rate at the federal funds rate 25 basis points federal funds rate at 5'/4 percent. target for the federal funds rate 25

Decision 5'/4 percent. to 5 percent. basis points to 5'/ 2 percent.

2. Economic growth slowed in the first So far this year, the economy appears The economy appears to have grown Despite the ongoing adjusonent in part of the year and the adjusonent to have grown at a moderate pace and at a moderate pace during the first half the housing sector, the economy in the housing sector is ongoing. seems likely to continue to do so over of this year, despite the ongoing appears to have grown at a

evertheless, the economy seems coming quarters. But ongoing adjusonent in the housing sector. The moderate pace so far this year. The likely to expand at a moderate pace weakness in the housing sector implies economy seems likely to continue to economy seems likely to continue to

over coming quarters. a significant risk dlat economic activity expand at a moderate pace over expand at a moderate pace over might grow more slowly than coming quarters. coming quarters. anticipated.

3. Core inflation remains somewhat Core inflation has edged lower in Readings on core inflation have Although readings on core inflation elevated. Aldl0Ugh inflation recent months and is expected to improved modesdy in recent months. have improved modesdy ill recent

R ationale pressures seem likely to moderate remain moderate over dle next year or However, a sustained moderation in months, core inflation remains over time, the high level of resource so. However, the high level of inflation has yet to be convincingly somewhat elevated. Inflation utilization has the potential to resource utilization has the potential to demonstrated. Moreover, the high pressures seem likely to moderate sustain those pressures. add to inflation pressures going level of resource utilization has the over time, but considerable

forward. potential to sustain inflation pressures. uncertainty surrounds that judgment. Moreover, the high level of resource utilization, in combination with earlier increases in the prices of energy and other commodities, has the potential to sustain those pressures.

4. In these circumstances, the With this policy action, the Committee Even after dus action, the Committee's predominant policy judges that the downside risk to Committee's predominant policy concern remains the risk that economic growth now roughly

IUnchanged] concern remains dle risk that

inflation will fail to moderate as balances the upside risk to inflation. inflation will fail to moderate as Assessment expected. Future policy adjusonents Future policy adjusonents will depend expected. Future policy

of Risk will depend on dle evolution of the on the evolution of the oudook for adjusonents will depend on the oudook for bodl inflation and both inflation and economic growth, evolution of the oudook for both economic growth, as implied by as implied by incoming information. inflation and economic growth, as incoming information. implied by inconling information.


Class I FOMC - Restricted-Controlled (FR) Material for FOMC Briefing on FOMC Communications Vincent R. Reinhart June 28, 2007


Exhibit 1

Enhanced Economic Projections

1 Did the changes to the projections process address the concerns expressed inanswer to the May suvey?

Those concerns related to:● Sharing forecast submissions● Providing information on the federal funds rate path● Characterizing uncertainty and risks about the forecast

2 In what form should the projections be released?

Option 1Stand-alone section in the minutes, reproduced in the Monetary Policy Report

Option 2Brief reference in the minutes, main narrative in an annex or separate document,reproduced in the Monetary Policy Report

Option 3Fully integrated discussion in the minutes and separate discussion in the MonetaryPolicy Report

3 When should the projections be finalized?

The choices include:● the day of the meeting● the end of the week of the meeting● as late as practicable to be close to the official release of the document


Exhibit 2

Minutes

4 How do you assess the benefits and costs of further expediting the minutes?

Potential Benefits Potential Costs

● Will be more of an aid to the private sector ● Increased effort to ensure your schedulesin understanding the current outlook align with drafting and approval

● You will be able to use material from the ● Might lead to more compromises that makeminutes for public statements more promptly the minutes less informative

● May facilitate making the post-meeting ● More staff resources will be neededstatement shorter or less substantive.

5 How do you assess the current content of the minutes, including the staff’s description of recent data?


Exhibit 3(Last page)

Post-Meeting Statement

6 What is the appropriate role of the statement in light of the changes to the Committee’s other communication devices?

7 Should the statement provide forward-looking guidance on the:

● near-term prospects for the target federal funds rate?(The left hand side of the policy rule)

● medium-term prospects toward fostering the dual mandate?(The right hand side of the policy rule)

8 What policy rate assumption should the statement be based upon?

● appropriate path of monetary policy

● the path expected in financial markets

● an unchanged federal funds rate

9 What is the appropriate degree of pre-meeting consultation with participants on the statement?

10 Should the current approval process for the statement be continued?


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