August 8, 6 Authorized for Public Release 148 of 158 Appendix 1: Materials used by Mr. Kos
Class II -- Restricted FR Page 1 of 4 Realized Volatility of MSCI Equity Indices 35 25 15 5 22 August 8, 6 Authorized for Public Release 149 of 158 Note: rolling 21-day volatility of daily returns 5//6: Emerging Markets Europe U.S. 6/29/6: Japan 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 Implied Volatility on the S&P Treasury Yield Implied Volatility 24 Average since January 199:.77 35 25 15 5 Basis Points 6 98 Average since January 199: 19.23 9 18 16 VIX Index Move Index 82 74 14 66 12.5. Source: CBOE 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 1-Month Euro-Dollar Implied Volatility Average since January :. Source: Merrill Lynch 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 1-Month Dollar-Yen Implied Volatility 58 5 11.9 11.2 9.5 9. 8.5 8. Average since January : 9..5 9.8 9.1 8.4 7.5 Source: UBS 7. 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 7.7 Source: UBS 7. 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1
August 8, 6 Authorized for Public Release 15 of 158 Page 2 of 4 Changes in Select Central Bank Policy Rates Activity Since January 2, 6 Region Country Official Interest Rate Current Rate in Bps since 1/2/6 Last Change The Americas United States Federal funds rate Jun-29 Canada Overnight funding rate 4.25 May-24 Brazil SELIC overnight rate 14.75 (325) Jul-19 Mexico Repo rate 7. (125) Apr-21 Chile Discount rate 75 Jul-14 Europe/Africa Euro area Refi rate 3. 75 Aug-3 United Kingdom Repo rate 4.75 25 Aug-3 Sweden Repo rate 2.25 75 Jun- Norway Deposit rate 2.75 5 May-31 Czech Republic 2-week repo rate 2.25 25 Jul-27 Hungary 2-week deposit rate 6.75 75 Jul-24 Slovak Republic 2-week repo rate 4.5 15 Jul-25 South Africa Repo rate 8. Aug-3 Switzerland 3-month Swiss Libor 1.5 5 Jun-15 Turkey Overnight borrowing rate 17.5 Jul- Asia/Pacific Australia Cash rate 6. 5 Aug-2 Japan Overnight call rate.25 25 Jul-14 Korea Overnight call rate 4.25 5 Jun-8 India Reverse repo rate 6. 75 Jul-25 Thailand 14-day repo rate 5. Jun-7 Taiwan Official discount rate 2.5 25 Jun-29 Source: JP Morgan Trillions of Yen 35 25 15 5 Bank of Japan Current Account Balances and Overnight Call Rate BoJ Current Account Balances (LHS) Uncollateralized Overnight Call Rate (RHS) 1/1 1/15 1/29 2/12 2/26 3/12 3/26 4/9 4/23 5/7 5/21 6/4 6/18 7/2 7/16 7/..35..25..15..5.
August 8, 6 Authorized for Public Release 151 of 158 Page 3 of 4 Index 115 1 5 Index: 1/2/6= U.S. Equity Performance Dow Jones Industrial Average Index 115 1 5 95 9 NASDAQ S&P 5 95 9 85 Jan-6 Feb-6 Mar-6 Apr-6 May-6 Jun-6 Jul-6 Aug-6 85 5.5 2- and -Year Treasury Yields and Target Fed Funds Rate -Year Yield 5.5 5. 4.75 4.5 4.25 4. Target Fed Funds 2-Year Yield 6/14/6: CPI 7/7/6: June Employment Report 7/28/6: GDP 7/25/6: Minutes Jan-6 Feb-6 Mar-6 Apr-6 May-6 Jun-6 Jul-6 Aug-6 5. 4.75 4.5 4.25 4. 2.8 2.7 5Y-5Y Forward Breakeven Rate U.S. Breakeven Inflation Rates 6/29/6: 2.8 2.7 2.6 2.6 2.5 2.4 2.3 Y Breakeven Rate 6/5/6: Chairman's ABA Speech 6/14/6: CPI 7/7/6: 7/28/6: June GDP Employment Report 7/25/6: Minutes Jan-6 Feb-6 Mar-6 Apr-6 May-6 Jun-6 Jul-6 Aug-6 2.5 2.4 2.3
6. 5.75 5.5 5. 4.75 4.5 4.25 4. 8. 7.75 7.5 7.25 7. 6.75 6.5 6.25 6. 5.75 5.5 $ Current U.S. 3-Month Deposit Rates and Rates Implied by Traded Forward Rate Agreements October 1, 5 to August 4, 6 Libor Fixing 3M Forward 6M Forward 9M Forward Page 4 of 4 Oct-5 Nov-5 Dec-5 Jan-6 Feb-6 Mar-6 Apr-6 May-6 Jun-6 Jul-6 Aug-6 November 1, 1999 to September, $ Libor Fixing 3M Forward 6M Forward 9M Forward +25 bps +25 bps 3//: Nasdaq Peak +25 bps FOM C +5 bps Nov-99 Dec-99 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- 3-Month Eurodollar Futures Contracts December 6-7 Rate Spread December - 1 Rate Spread Basis Points October 1, 5 August 4, 6 November 1, 1999 September, 5-5 - -15 - -25 - -35 Oct- 5 August 8, 6 Authorized for Public Release 152 of 158 Nov- 5 Dec- 5 Jan- 6 Feb- 6 Mar- 6 Apr- 6 May- 6 Jun- 6 Jul- 6 Aug- 6 Nov- 99 Dec- 99 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- 6. 5.75 5.5 5. 4.75 4.5 4.25 4. 8. Sep- 7.75 7.5 7.25 7. 6.75 6.5 6.25 6. 5.75 5.5 Basis Points 35 25 15 5-5 - -15 -
August 8, 6 Authorized for Public Release 153 of 158 Appendix 2: Materials used by Mr. Madigan
August 8, 6 Authorized for Public Release 154 of 158 Class I Restricted Controlled FR Material for Briefing on Monetary Policy Alternatives Brian Madigan August 8, 6
August 8, 6 Authorized for Public Release 155 of 158 Exhibit 1 of 4 Monetary Policy Expectations Class I - Restricted Controlled FR 9 8 7 6 5 Probability of a 25 b.p. Firming at August Meeting* 5-minute intervals statement ADP June employment report PPI CPI MPR testimony (Senate) minutes June 29 July 4 July 7 July 12 July 17 July July 25 July 28 Aug. 2 Aug. 7 *Estimated from federal funds futures, with an allowance for term premia. GDP July employment report 9 8 7 6 5 Dealer Survey: Average Disagreement and Uncertainty Regarding Policy Choice Two Weeks Before Meeting Basis points Average disagreement Average individual uncertainty 14 12 8 6 4 2 Dealer Survey: Expectations regarding August Statement Express more conviction regarding moderation of growth Acknowledge elevated inflation ratings Express concern about inflation risks Indicate data dependence Sep-5 Nov-5 Dec-5 Jan-6 Mar-6 May-6 Jun-6 Aug-6 Expected Federal Funds Rates based on Federal Funds Futures August 7, 6 June 28, 6 6. 5.75 Expected Federal Funds Rate June 28, 6 6. 5.5 Eurodollar Implied Volatility at Selected Maturities* Basis points Twelve months ahead Aug. 8 Sep. Oct. 24 Dec. 12 Meeting 5.5 5. August 7, 6 Aug. Jan. June Nov. Apr. Oct. 6 7 8 Note. Estimates from federal funds and Eurodollar futures, with an allowance for term premia and other adjustments. 5. 4.5 4. Six months ahead 1994 1997 3 6 *Width of 9 percent confidence interval computed from the term structures for the expected federal funds rate and implied volatility.
August 8, 6 Authorized for Public Release 156 of 158 Class I - Restricted Controlled FR
August 8, 6 Authorized for Public Release 157 of 158 Class I - Restricted Controlled FR
August 8, 6 Authorized for Public Release 158 of 158 Exhibit 4 of 4 Class I - Restricted Controlled FR Policy Decision Rationale Assessment of Risk Table 1: Alternative Language for the August Announcement Alternative A Alternative B Alternative C Alternative D 1. The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5¼ percent. 2. Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices. 3. Readings on core inflation have been elevated in recent months, owing in part to passthrough of increased energy and other commodity prices. However, inflation pressures seem likely to moderate over time, reflecting the cumulative effects of monetary policy actions and other factors restraining aggregate demand, ongoing productivity gains, and contained inflation expectations. 4. In these circumstances, future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5¼ percent. The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5½ percent. The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5½ percent. [Same as A] [Same as A] [Same as A] Readings on core inflation have been elevated in recent months, owing in part to the pass-through of increased energy and other commodity prices. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. [Same as A] Readings on core inflation have been elevated in recent months. The moderation in the growth of aggregate demand and anchored inflation expectations should help to contain inflation in coming quarters. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. The extent and timing of any additional firming that may be needed to foster a moderation in inflation pressures will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. 5. [None] [None] [None] [None]