September 16, of 106. Appendix 1: Materials used by Mr. Kos

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1 September 16, 3 96 of 6 Appendix 1: Materials used by Mr. Kos

2 September 16, 3 97 of 6 Page 1 Current U.S. 3-Month Deposit Rate and Rates Implied by Traded Forward Rate Agreements May 1, 3 - September, 3 LIBOR Fixing 3M Forward 6M Forward 9M Forward 5/6 FOMC 6/25 FOMC 7/ bps Chairman s testimony to Congress 7/31 Q2 GDP (2.4%) 8/12 FOMC 9/2 Aug ISM (54.7) /28 Q2 GDP Revised (3.1%) 5/1 5/12 5/23 6/3 6/14 6/25 7/6 7/17 7/28 8/8 8/19 8/3 9/ 9/5 Aug Employment (-93K) /1 5/17 6/2 6/18 7/4 7/ 8/5 8/21 9/6 Basis Points Year Note 5/6 FOMC 6/25 FOMC -25 bps U.S. Treasury Yields May 1, 3 - September, 3 8/12 FOMC Year Note 5/1 5/17 6/2 6/18 7/4 7/ 8/5 8/21 9/6 U.S. Nominal Treasury Yields Less Inflation-Indexed Treasury Yields May 1, 3 - September 12, 3 5/6 FOMC 6/25 FOMC -25 bps 5/6 FOMC 6/25 FOMC -25 bps 8/12 FOMC Basis Points US -year US 5-year 8/12 FOMC 16 5/1 5/13 5/25 6/6 6/18 6/3 7/12 7/24 8/5 8/17 8/29 9/

3 September 16, 3 98 of 6 Page 2 Current 3-Month Euro-Area Deposit Rate and Rates Implied by Traded Forward Rate Agreements May 1, 3 - September, 3 LIBOR Fixing 3M Forward 6M Forward 9M Forward 5/6 FOMC 6/6 ECB rate 6/25 FOMC 7/31 US GDP 8/12 cut - 5bps -25 bps data release FOMC (2.4%) /5 US Aug Employment Report (-93,) /1 5/13 5/25 6/6 6/18 6/3 7/12 7/24 8/5 8/17 8/29 9/ European -Year Government Yields May 1, 3 - September, UK Italy Spain Germany France 5/1 5/13 5/25 6/6 6/18 6/3 7/12 7/24 8/5 8/17 8/29 9/ Index 5/1/3 = S&P 5 Bolsa Hang Seng Select Global Equity Indices May 1, 3 - September 12, 3 Kospi DJ Euro Stoxx Taiwan Wtd Index Bovespa Index 5/1/3 = 5/1 5/13 5/25 6/6 6/18 6/3 7/12 7/24 8/5 8/17 8/29 9/

4 Index 5/1/3= September 16, 3 99 of 6 5/19: Resona Bank Bailout Nikkei Topix Japanese Equities May 1, 3 - September 12, 3 Topix Bank Index 8/12: Japan Q2 Preliminary GDP Index 5/1/3= 5/1 5/13 5/25 6/6 6/18 6/3 7/12 7/24 8/5 8/17 8/29 9/ Page Maturity Japanese Government Yield Curves 9/12/3 6/12/ yr 5-yr -yr 3-yr 3 25 Bank of Japan Current Account Balance January 1, 2 - September 12, 3 Trillion Yen 35 Fiscal Year End Trillion Yen 35 1/2 5/2 9/2 1/3 5/3 9/ Yen per U.S Dollar Dollar-Yen Exchange Rate May 1, 3 - September 12, 3 Intervention since Aug FOMC: $39.8 bn Intervention YTD: $111.9 bn Yen per U.S. Dollar 121 5/1 5/17 6/2 6/18 7/4 7/ 8/5 8/21 9/

5 September 16, 3 of 6 Weekly FICC Fails Volume January 1, 3 - September 12, 3 Page 4 Par value, in billions 1, Par value, in billions 1, 9 8 Aggregate Gross Securities Fails May -year Fails /1 1/22 2/12 3/5 3/26 4/16 5/7 5/28 6/18 7/9 7/3 8/ 9/ Weekly Aggregate SOMA Securities Lending Volume January 1, 3 - September 12, 3 Par value, in billions Par value, in billions /31: End of Q1 6/25: FOMC -25 bps 6/3: End of Q Awards 8/14: Blackout 8/: Refunding Settlement /1 1/22 2/12 3/5 3/26 4/16 5/7 5/28 6/18 7/9 7/3 8/ 9/ 1

6 September 16, 3 1 of 6 Total Fed Balances: Nonborrwed and Borrowed, Aug. 1 to Sep. 12 Page 5 6 Blackout Period Balances at All Banks and at Foreign Banks from 8/13-8/19 Billions of Dollars Nonborrowed Balances Borrowed Balances Billions of Dollars All 8/13 8/14 8/ 8/18 8/19 Foreign All Foreign All Foreign All Foreign All Foreign 8/1 8/11 8/19 8/27 9/4 9/12 Date % 2 1/2 2 1/4 2 Federal Funds Market Conditions range (gray vertical line), intervention level (blue circle), and effective (red horizontal line) High Rate Exceeds Primary Credit Rate for 1st Time Ever % 2 1/2 2 1/ /4 1 3/4 1 1/2 1 1/2 1 1/4 1 1/ /4 3/4 1/2 1/4 Blackout 1/2 1/4 8/1 8/11 8/19 8/27 9/4 9/12 Currency Component of M1 (s.a.) 1-Month Annualized Growth Rate January 1 - August Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-2 Mar-2 May-2 Jul-2 Sep-2 Nov-2 Jan-3 Mar-3 May-3 Jul-3

7 September 16, 3 2 of 6 Appendix 2: Materials used by Mr. Reinhart

8 September 16, 3 3 of 6 Expected Federal Funds Rates* Exhibit 1 Market Expectations about Policy Primary Dealers' Expectation of Risk Assessment (FRBNY Survey, as of September 9) Balance Objectives Downside Balanced Upside August 11,3 Growth 2 September, 3 Price Stability 22 Predominant Risk 1 1 Sept. Feb. June Oct. Feb. June Oct. Feb *Estimates from federal funds and eurodollar futures 6 Probability of Federal Funds Rate at or Below.5 About Six Months Ahead Implied Distribution of Federal Funds Rate About Six Months Ahead* Recent: 9//3 45 Last FOMC: 8/11/3 4 S35 I I I I S Jan. Apr. July Oct. Jan. Apr. July *Estimates from options on eurodollar futures contracts, adjusted to estimate expectations for the federal funds rate. Volatility of Federal Funds Rate Average Absolute Daily Change S May 3 - September 3 November May 3 age Points Months Ahead Average Response of Futures Rates to Unemployment Rate Surprise* age Points Months Ahea.1 Months Ahead June 3 - September 3 January September 3 *Response to hypothetical one percentage point surprise increase in unemployment rate

9 September 16, 3 4 of 6 Exhibit 2 The Case for Easing 25 Basis Points Considerable resource slack lingers in the staff projection. The neutral real funds rate may be above the equilibrium real funds rate. Capital spending may not recover. Unemployment Rate Unemployment Rate Greenbook Baseline (black) Weaker Investment (red) Q4 4 H1 4 H2 5 I Actual Real Federal Funds Rate and Range of Estimated Equilibrium Real Rates Quarterly S-Actual Real Funds Rate Historical Average: 2.66 (1966Q1-3Q2) IIS-Based Estimate SCren t.ate b.p. Easlng Note: The shaded range represents the maximum and the minimum values each quarter of four estimates of the equilibrium

10 September 16, 3 5 of 6 Exhibit 3 The Case for an Unchanged Target Federal Funds Rate * In the staff forecast, inflation holds fairly stable at around 1 percent. * There may be other sources of impetus. * Market participants may be right in expecting more pressure on inflation. Slope of the Yield Curve: Ten-Year Treasury - Federal Funds Rate Inflation Compensation* Investment Bank Economic Forecasts Daily 4: Q4 to Q4 Real GDP Growth CPI Inflation I I I I I I Jan. Feb. Mar. Apr. May June July Aug. 3 *Based on a comparison of an estimated TIIS yield curve to the nominal off-the-run Treasury yield curve.. 1. Goldman Sachs JP Morgan Bear Stearns Morgan Stanley Merrill Lynch Memo: Greenbook 5..9

11 September 16, 3 6 of 6 Exhibit 4 Risk Assessment Possibilities for the Overall Risk Assessment Risks to Price Stability Downside Balanced Upside Risks to Downside Downside Downside Sustainable Economic Balanced I Upside Growth Upside Upside I August Announcement Intended Federal Funds Rate "... the Committee believes that policy accommodation can be 3. maintained for a considerable period." May Oct. 1 Mar. Aug. Jan. May