Federal Open Market Committee

November 10th, 2014

Dual Mandate

Maximum
Employment

Dual Mandate

Broader Economy

Current Fed Policy

Stable Prices

Policy Proposal

Policy Debate

Statement Semantics

Labor Market Health

Source: Bureau of Labor Statistics

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Unemployment is falling

Source: Bureau of Labor Statistics

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Unemployment Expectations
Time

Unemployment
rate (%)

Q4 2014

6.0

Q1 2015

5.8

Q2 2015

5.8

Q3 2015

5.6

Q4 2015

5.5

2016

5.4

2017

5.3

Source: Survey of Professional Forecasters

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Concerns with Labor

Market Health

Source: Bureau of Labor Statistics

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Stagnate Wage Growth

Source: Bureau of Economic Analysis

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Inflation Measures

Source: Bureau of Economic Analysis

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Concerns with falling

commodity prices

Source: International Monetary Fund

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Inflation Expectations

Source: Federal Reserve Bank of Cleveland

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Inflation Expectations

Headline PCE
Previous Current
Q4/Q4 Annual Averages
2014
1.6
1.8
2015
1.9
2
2016
1.9
2
Long-Term Annual Averages
1.9
2014-2018
2014-2023
2

Core PCE
Previous Current
1.5
1.8
1.9

1.7
1.9
1.9

2
2

Source: Survey of Professional Forecasters

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Gross Domestic
Product

Source: Bureau of Economic Analysis

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Gross Domestic
Product

Source: Bureau of Economic Analysis

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Gross Domestic Product

Projections

Source: Bureau of Economic Analysis; Congressional Budget Office

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Financial Stress

Source: Federal Reserve Bank of Cleveland

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Bank Stability

Source: Federal Reserve Board

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

The Flat Yield Curve

Ten Year US Treasury Bond Yield

Source: Chicago Board of Trade (^TNX)

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Corporate Bonds

Source: Bank of America Merrill Lynch Global Research

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Financial Market
Stability

Stock Market Volatility

Source: Standard and Poors

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Fed Funds Rate Futures

Expectations

Source: Chicago Board of Trade

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Current Policy

Total Assets of the

Federal Reserve

Source: Federal Open Market Committee

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Policy Proposal

Source: Federal Open Market Committee

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Policy Firming Expectations

Source: Federal Open Market Committee

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Policy Proposal Tools

Implementation Guidelines
Use interest paid on excess reserves
(IOER) as main policy tool
ON RRP and TDF as supplemental

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Discussion
Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Inflation Expectations

Source: Federal Open Market Committee

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Long Term Unemployed

Source: Bureau of Labor Statistics

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Consumption and GDP

Source: Bureau of Economic Analysis

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Household Wealth

Source: Haver Analytics via the Federal Reserve Bank of Richmond

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Consumer Sentiment

Source: Thomson Reuters/ University of Michigan Surveys of Consumers

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Concerns with Policy Tools

Traditional Tools are well

established
New Framework tools are relatively
untested

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

ON RRP Testing

Source: Federal Reserve Board

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

BoEs use of IOER

Source: David Bowman (FRB); Bank of England; used with permission

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Statement Semantics
FOMC Concludes: Implement Normalization in
2015
Forward Guidance at December 2014 Meeting
Contingent on other economic indicators

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Thank You
Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Financial Market
Stability

Source: Standard and Poors

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Taylor Rule

Source: Bureau of Economic Analysis; Federal Open Market Committee

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Term Deposit Facility

Testing

Source: Federal Reserve Board

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Labor Markets

Source: Bureau of Labor Statistics

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Disposable Income

Source: Bureau of Economic Analysis

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics

Transmission Channels

Source: Federal Reserve Bank of New York

Dual Mandate

Broader Economy

Current Fed Policy

Policy Proposal

Policy Debate

Statement Semantics