Part of the 2009 2nd Place FRBNY College Fed Challenge Presentation

1. Federal Reserve Challenge Presentation Federal Reserve Bank of New York – November 20, 2009

3. Domestic Economic Conditions

4. The Real Estate Crisis

5. Financial Markets

6. Forecast

7. Contemporary Monetary Policy Challenges

8. Monetary Policy Recommendation

9. Draft FOMC Policy Directive

10. Question & Answer SessionFederal Reserve Challenge

11. International Economic Conditions Source: International Monetary Fund Federal Reserve Challenge

12. International Economic Conditions Federal Reserve Challenge

13. International Economic Conditions Source: U.S. Department of Commerce Bureau of Economic Analysis, U.S. Census Bureau Federal Reserve Challenge

14. International Economic Conditions Source: Netherlands Bureau of Economic Policy Analysis Federal Reserve Challenge

15. International Economic Conditions Amounts Outstanding Source: Federal Reserve Board (H.4.1) Federal Reserve Challenge

16. International Economic Conditions Source: U.S. Census Bureau, Office of Management and Budget Federal Reserve Challenge

17. International Economic Conditions Sources: European Central Bank, Norges Bank, Sveriges Riksbank, Central Bank of Russia, People’s Bank of ChinaKorea Federation of Banks, Financial Times Federal Reserve Challenge

18. International Economic Conditions Source: U.S. Department of Commerce Bureau of Economic Analysis Federal Reserve Challenge

19. International Economic Conditions Source: Federal Reserve Bank of St. Louis, Federal Reserve Bank of New York Federal Reserve Challenge

20. International Economic Conditions Up 0.25% Up 0.25% Up 0.25% Source: Norges Bank, Reserve Bank of Australia, Bank of Israel Federal Reserve Challenge

21. International Economic Conditions Central Bank Cooperation Federal Reserve Challenge

22. International Economic Conditions Source:Organization for Economic Cooperation & Development Federal Reserve Challenge

23. Domestic Economic Conditions Source: U.S. Department of Labor: Bureau of Labor Statistics Federal Reserve Challenge

24. Domestic Economic Conditions Source: U.S. Department of Labor: Bureau of Labor Statistics Federal Reserve Challenge

25. Domestic Economic Conditions Source: U.S. Department of Labor Bureau of Labor Statistics, Automatic Data Processing Federal Reserve Challenge

26. Domestic Economic Conditions Source: U.S. Department of Labor :Bureau of Labor Statistics Federal Reserve Challenge

27. Domestic Economic Conditions Monthly Mass Layoffs Source: U.S. Department of Labor: Bureau of Labor Statistics Federal Reserve Challenge

28. Domestic Economic Conditions Employment Cost Index (%∆quarterly) Source: U.S. Department of Labor: Bureau of Labor Statistics Federal Reserve Challenge

29. Domestic Economic Conditions Source: U.S. Department of Labor: Bureau of Labor Statistics Federal Reserve Challenge

30. Domestic Economic Conditions Source: U.S. Department of Commerce: Bureau of Economic Analysis Federal Reserve Challenge

31. Domestic Economic Conditions Source: U.S. Department of Commerce Census Bureau Source: U.S. Department of Commerce Bureau of Economic Analysis Federal Reserve Challenge

32. Domestic Economic Conditions Source: U.S. Department of Commerce: Bureau of Economic Analysis Federal Reserve Challenge

33. Domestic Economic Conditions Source: U.S. Department of Commerce: Bureau of Economic Analysis Federal Reserve Challenge

34. Domestic Economic Conditions Sources: The Conference Board, University of Michigan Survey Research Center Federal Reserve Challenge

35. Domestic Economic Conditions Source: U.S. Department of Commerce Bureau of Economic Analysis Federal Reserve Challenge

36. Domestic Economic Conditions Source: U.S. Department of Commerce Bureau of Economic Analysis Federal Reserve Challenge

37. Domestic Economic Conditions Non-residential Investment % Contribution to GDP Growth Source: U.S. Department of Commerce Bureau of Economic Analysis, Bureau of the Census Federal Reserve Challenge

38. Domestic Economic Conditions Sources: Congressional Budget Office, U.S. Department of Labor Bureau of Labor Statistics, U.S. Department of Commerce Bureau of Economic Analysis Federal Reserve Challenge

39. Domestic Economic Conditions Inventory to Sales Ratio Source: U.S. Department of Commerce Bureau of Economic Analysis, Bureau of the Census Federal Reserve Challenge

40. Domestic Economic Conditions Federal Reserve Board (G.17) Institute for Supply Management Federal Reserve Challenge

41. Domestic Economic Conditions U.S. Department of Labor: Bureau of Labor Statistics Federal Reserve Challenge

42. Domestic Economic Conditions Core Inflation (%∆ y/y) Source: U.S. Department of Labor: Bureau of Labor Statistics, U.S. Department of Commerce: Bureau of Economic Analysis Federal Reserve Challenge

43. Domestic Economic Conditions Source: Federal Reserve Board (H.3, H.6) Federal Reserve Challenge

44. Real Estate Markets Source: U.S. Department of Commerce Bureau of Economic Analysis Federal Reserve Challenge

45. Real Estate Markets Sources: U.S. Department of Commerce: Census Bureau Federal Reserve Challenge

46. Real Estate Markets Source: National Association of Realtors Federal Reserve Challenge

47. Real Estate Markets Source: Federal Home Loan Mortgage Corporation Federal Reserve Challenge

48. Real Estate Markets Source: U.S. Department of Commerce, CensusBureau Federal Reserve Challenge

49. Real Estate Markets Source: Standard and Poors Federal Reserve Challenge

50. Real Estate Markets Source: Federal Reserve Board (H.4.1) Federal Reserve Challenge

51. Real Estate Markets Source: Federal Deposit Insurance Corporation Federal Reserve Challenge

52. Financial Markets 1 Month OIS /LIBOR Spread Source: Reuters, Chicago Board of Trade Federal Reserve Challenge

53. Financial Markets Source: Federal Reserve Bank of New York, Reuters Federal Reserve Challenge

54. Financial Markets Source: Federal Reserve Board (H.4.1) Federal Reserve Challenge

55. Financial Markets Source: Reuters Federal Reserve Challenge

56. Financial Markets Source: Federal Deposit Insurance Corporation Federal Reserve Challenge

57. Financial Markets Source: Federal Reserve Bank of St. Louis Federal Reserve Challenge

58. Financial Markets Source: Federal Reserve Board Federal Reserve Challenge

59. Financial Markets Source: U.S. Department of Commerce Bureau of Economic Analysis, Federal Reserve Board (G.19) Federal Reserve Challenge

60. Financial Markets Source: Federal Reserve Bank of St. Louis, U.S. Department of the Treasury Federal Reserve Challenge

61. Financial Markets Federal Reserve Challenge

62. Financial Markets Source: Federal Reserve Bank of St. Louis Federal Reserve Challenge

63. Financial Markets Source: Federal Reserve Bank of St. Louis Federal Reserve Challenge

64. Financial Markets Source: Federal Reserve Board, Macroeconomic Advisers, Haver Analytics Federal Reserve Challenge

65. Monetary Policy Discussion GDP (%∆y/y) Unemployment Rate (%) Core PCE Deflator Source: Macroeconomic Advisors Federal Reserve Challenge

66. Monetary Policy Discussion 27% of ARRA Aggregate Demand Federal Reserve Challenge

67. Monetary Policy Discussion Source: Federal Reserve Board (H.4.1) Federal Reserve Challenge

68. Blockage Opening Banks Fed Facilities Libor Commercial & Industrial Consumer, Mortgage Loans Deposits Banks w/ Excess Loan Demand Commercial, Consumer, Mortgage Loans Savers & Investors Securities- Funded Lending Borrowers Financial-Issued ABS Commercial Paper & Bonds Direct Investment Commercial Paper, Bonds Securities Market

69. Monetary Policy Discussion Source: Federal Reserve Board (H.4.1) Federal Reserve Challenge

70. Blockage Opening Action to Revive the Commercial Paper Market: …To Temporarily Inserting Two Bypasses Commercial, Consumer, Mortgage Loans Savers & Investors Securities- Funded Loan Originators Borrowers ABS Paper Treasuries Fed & Treasury Commercial Paper Commercial Paper ABS Insurance Directly Buy Commercial Paper Commercial Paper (Direct) Securities Market Money Market Funds Buy Commercial Paper

71. Monetary Policy Discussion Source: Federal Reserve Board (H.4.1) Federal Reserve Challenge

72. Monetary Policy Discussion Source: Federal Reserve Board (H.4.1) Federal Reserve Challenge

73. Monetary Policy Discussion Federal Reserve Challenge

74. Monetary Policy Recommendation Federal Reserve Challenge

75. Monetary Policy Recommendation We recommend that the Federal Open Market Committee maintain the target range for the Federal Funds rate at 0-0.25% at its next meeting Federal Reserve Challenge

76. “V” Shaped Recovery Federal Reserve Challenge Rapid rebound in GDP Growth Continued Financial Improvement Credit Growth Reduction in Excess Bank Reserves Rapid growth in IP, Capacity Utilization, and Core PCE Strong Nonfarm Payroll Growth beginning within a few months Would require rapid monetary policy tightening Rate increases of large magnitudes (50bp or more) Possible emergency FOMC meetings to accelerate tightening cycle

77. “L” Shaped Recovery Federal Reserve Challenge Continued weakness in credit and monetary growth Sluggish growth in industrial production, capacity utilization, and GDP Weak consumer spending Nonfarm payrolls continue to improve slowly Consumer Confidence & Sentiment Remain Low Monetary policymakers would have time to enact a measured exit strategy Small rate increases Rate increases spread over more than one meeting

78. “W” Shaped Recovery Federal Reserve Challenge Recovery falters, possibly due to another financial or commodity price shock Mix of positive and negative indicator releases become increasingly negative Consumer and Business confidence falls Nonfarm payroll numbers rapidly deteriorate Deflation becomes a significant risk Contraction begins while monetary policy is still accomodative Re-engage in credit easing, expand to new types of assets Expand lending facilities and create new ones Set negative nominal interest rate for excess reserves

79. Recommendation for Policy Directive Please turn to the FOMC Policy Directive Packet Federal Reserve Challenge

80. Monetary Policy Recommendation Expected Unemployment Rate (%) Federal Reserve Challenge