Federal Open Market Committee

November 1st, Chicago

"

Gross Domestic Product!

percent change from previous period !
8.0%!

6.0%!

4.0%!

2.0%!

.0%!

-2.0%!

-4.0%!

-6.0%!

-8.0%!

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Government Expenditure and Inventory over GDP!

percent change from previous period!
Government Expeditures and Investment
8.0%!

Private Inventories

800.0

6.0%!

600.0

4.0%!

400.0

2.0%!

200.0

.0%!

0.0

-2.0%!

-200.0

-4.0%!

-400.0

-6.0%!

-600.0

-8.0%!

-800.0

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Personal Consumption Expenditures!

percent change from previous period!
3.0%!

2.5%!

2.0%!

1.5%!

1.0%!

.5%!

.0%!
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2006! 2006! 2006! 2006! 2007! 2007! 2007! 2007! 2008! 2008! 2008! 2008! 2009! 2009! 2009! 2009! 2010! 2010! 2010!
Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Personal Income & Personal Saving Rate!

seasonally adjusted!
Personal Saving Rate (as percentage)!
8%!
7%!
6%!
5%!
4%!
3%!
2%!
1%!
0!%!

Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2007! 2007! 2007! 2007! 2008! 2008! 2008! 2008! 2009! 2009! 2009! 2009! 2010! 2010!
Personal Income (quarterly percent change)!
3%!
2%!
2%!
1%!
1%!
0!%!
-1%!
-1%!
-2%!
-2%!
-3%!

Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2007! 2007! 2007! 2007! 2008! 2008! 2008! 2008! 2009! 2009! 2009! 2009! 2010! 2010!
Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Household and Nonprofit Wealth (Assets Less Liabilities)!

Billions of dollars outstanding, not seasonally adjusted !
60000!

50000!

40000!

30000!

20000!

10000!

0!
2004!

2005!

2006!

2007!

2008!

2009 Q1!

2009 Q2!

Source: Federal Reserve http://www.federalreserve.gov/releases/z1/current/accessible/b100.htm!

2009 Q3!

2009 Q4!

2010 Q1!

2010 Q2!

0!
Jul-10!

Apr-10!

Jan-10!

Oct-09!

Jul-09!

Apr-09!

Jan-09!

Oct-08!

Jul-08!

Apr-08!

Jan-08!

Oct-07!

Jul-07!

Apr-07!

Jan-07!

Unemployment Rate!

12!

10!
200!

8!
0!

2!

-1000!

Source: Bureau of Labor Statistics http://www.bls.gov/news.release/empsit.toc.htm!

Jan-07!
Mar-07!
May-07!
Jul-07!
Sep-07!
Nov-07!
Jan-08!
Mar-08!
May-08!
Jul-08!
Sep-08!
Nov-08!
Jan-09!
Mar-09!
May-09!
Jul-09!
Sep-09!
Nov-09!
Jan-10!
Mar-10!
May-10!
Jul-10!
Sep-10!

Unemployment!
Seasonally adjusted!
Change in Private Payrolls!

Change in Total Nonfarm!

400!

-200!

6!
-400!

4!
-600!

Due to Census hiring!

-800!

Unemployment Situation!
Monthly/average number of weeks, seasonally adjusted,!
Percent!
20%!

U3!

U6!

Unemployment!

15%!
10%!
5%!
0!%!

Weeks!

Average Duration of Employment!

30!
25!
20!
15!
10!
5!
0!

Source: Bureau of Labor Statistics http://www.bls.gov/news.release/empsit.toc.htm!

NFIB Small Business Optimism Index!

1986 = 100!
105.0

100.0

95.0

90.0

85.0

80.0

Source: National Federation of Independent Businesses - http://www.nfib.com/research-foundation!

Job Openings!
Seasonally Adjusted!
Percent!

Unemployment Rate!

JOLTS!

Thousands!

12!

6000!

10!

5000!

8!

4000!

6!

3000!

4!

2000!

2!

1000!

0!

0!

Source: Bureau of Labor Statistics http://data.bls.gov/PDQ/servlet/SurveyOutputServlet!

Change in Employment!
Percent change in various sectors!
July 1981 November 1982

July 1990 March 1991

March 2001 November 2001

December 2007 June 2009

Leisure and Hospitality!

Education and Health

Services!

Professional Services!

Retail!

Trade, Transportation,
Utilities!

Manufacturing!

Construction!

Total Private!
-20! -15! -10! -5!

0!

5! -20! -15! -10! -5!

0!

5!

-20! -15! -10! -5!

0!

5!

-20 -15 -10

-5

Source: Minneapolis Federal Reserve http://www.minneapolisfed.org/news_events/pres/ & St. Louis Federal Reserve http://research.stlouisfed.org/fred2/!

NFIB Businesses with Hard to Find Openings!

Percent of positions unfilled!
30%!

25%!

20%!

15%!

10%!

5%!

0!%!

Source: NFIB http://www.nfib.com/Portals/0/PDF/sbet/SBET201010.pdf!

0.0
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10

Freddie Mac Delinquencies!

90+ days or in foreclosure!

Percentage!

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

Source: Freddie Mac https://ww3.freddiemac.com/investors/volsum/!

Case Shiller Index!

Composite-20!
250.00!

200.00!

150.00!

100.00!

50.00!

0.00!

Source: S&P http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/!

Industrial Production & ISM P!

Seasonally adjusted, monthly!
ISM!

Industrial Production Index!

Industrial Production Index!

Base Year (2007 = 100)!

PMI!

70.0!

105.00!

Zero Growth Threshold!

65.0!
100.00!
60.0!
95.00!
55.0!

50.0!

90.00!

45.0!
85.00!
40.0!
80.00!

Jul-10!

Apr-10!

Jan-10!

Oct-09!

Jul-09!

Apr-09!

Jan-09!

Oct-08!

Jul-08!

Apr-08!

Jan-08!

Oct-07!

Jul-07!

Apr-07!

30.0!

Jan-07!

75.00!

Jan-07!
Mar-07!
May-07!
Jul-07!
Sep-07!
Nov-07!
Jan-08!
Mar-08!
May-08!
Jul-08!
Sep-08!
Nov-08!
Jan-09!
Mar-09!
May-09!
Jul-09!
Sep-09!
Nov-09!
Jan-10!
Mar-10!
May-10!
Jul-10!
Sep-10!

35.0!

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/ & http://www.federalreserve.gov/datadownload/Download.aspx?rel=G17!

Capacity Utilization!
Seasonally adjusted, monthly!
85.0!

80.0!

75.0!

70.0!

65.0!

60.0!

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Manufacturing Inventory to Sales Ratio!

Quarterly, Seasonally adjusted!
Manufacturing Inventory/Sales Ratio!
1.5!
1.45!
1.4!
1.35!
1.3!
1.25!
1.2!
1.15!
1.1!
1.05!
1!

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Prerecession Average! (2003 2005)

Fixed Private Investment!

Quarterly, Seasonally adjusted!
6.0!

4.0!

2.0!

0.0!

-2.0!

-4.0!

-6.0!

-8.0!

-10.0!

-12.0!

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

0.0!
Q1 1981!
Q4 1981!
Q3 1982!
Q2 1983!
Q1 1984!
Q4 1984!
Q3 1985!
Q2 1986!
Q1 1987!
Q4 1987!
Q3 1988!
Q2 1989!
Q1 1990!
Q4 1990!
Q3 1991!
Q2 1992!
Q1 1993!
Q4 1993!
Q3 1994!
Q2 1995!
Q1 1996!
Q4 1996!
Q3 1997!
Q2 1998!
Q1 1999!
Q4 1999!
Q3 2000!
Q2 2001!
Q1 2002!
Q4 2002!
Q3 2003!
Q2 2004!
Q1 2005!
Q4 2005!
Q3 2006!
Q2 2007!
Q1 2008!
Q4 2008!
Q3 2009!
Q2 2010!

Fixed Private Investment!

Billions of dollars, quarterly seasonally adjusted!

2500.0!

2000.0!

1500.0!

1000.0!

500.0!

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Inflation Measures!
Percent change, annually, seasonally adjusted!

Jul-10!

Apr-10!

Jan-10!

Oct-09!

Jul-09!

Apr-09!

Jan-09!

Oct-08!

PPI!

Jul-08!

Apr-08!

Jan-08!

Jul-07!

Apr-07!

Jan-07!

Oct-06!

Jul-06!

Apr-06!

Jan-06!

Jul-10!

Apr-10!

Jan-10!

Oct-09!

Jul-09!

Apr-09!

Jan-09!

Oct-08!

5%!
4%!
3%!
2%!
1%!
0 %!
-1%!
-2%!
-3%!
-4%!
-5%!
-6%!

Oct-07!

Core PPI!

CPI!

Jul-08!

Apr-08!

Jan-08!

Oct-07!

Jul-07!

Apr-07!

Jan-07!

Oct-06!

Jul-06!

Apr-06!

5%!
4%!
3%!
2%!
1%!
0!%!
-1%!
-2%!
-3%!
-4%!
-5%!
-6%!

Jan-06!

Core CPI!

Core PCE Deflator

3.0
2.5

Implicit Inflation!

2.0
1.5
1.0
0.5
0.0

Q1
2006

Q2
2006

Q3
2006

Q4
2006

Q1
2007

Q2
2007

Q3
2007

Q4
2007

Q1
2008

Q2
2008

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Q3
2008

Q4
2008

Q1
2009

Q2
2009

Q3
2009

Q4
2009

Q1
2010

Q2
2010

Q3
2010

Inflation Expectations!
Percent change, annually, seasonally adjusted!

TIPS Break-Even!

St. Louis Long Term Inflation Forecast!

4.00!

2.55!

3.00!

2.5!

2.00!

2.45!

1.00!

2.4!

0.00!

2.35!

-1.00!

2.3!

-2.00!

Jan-07!
Mar-07!
May-07!
Jul-07!
Sep-07!
Nov-07!
Jan-08!
Mar-08!
May-08!
Jul-08!
Sep-08!
Nov-08!
Jan-09!
Mar-09!
May-09!
Jul-09!
Sep-09!
Nov-09!
Jan-10!
Mar-10!
May-10!
Jul-10!
Sep-10!

-3.00!

2.25!

2.2!
Q2
2007!

Q4
2007!

Q2
2008!

Q4
2008!

Q2
2009!

Q4
2009!

Q2
2010!

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2 and Philidelphia Fed Bank - http://www.philadelphiafed.org/research-and-data/!

FDIC Bank Failures & Mergers!

Numbers of Banks!
Bank Mergers!

FDIC Bank Failures!

140

160!

140!

120

120!
100

100!
80

80!
60

60!
40

40!
20

20!

0!
2007!

2008!

2009!

2010!

2006

Source: Federal Deposit Insurance Corporation - http://www2.fdic.gov/hsob/hsobRpt.asp !

2007

2008

2009

NFIB Small Businesses Borrowing Needs Satisfied!

Percent satisfied/Percent not satisfied, Monthly!
12!

10!

8!

6!

4!

2!

0!

Source: National Federation of Independent Businesses - http://www.nfib.com/research-foundation!

Total Factors Supplying Reserve Funds!

Millions of dollars!
!
3000000

2500000

2000000

1500000

1000000

500000

0
2002

2003

2004

2005

2006

2006

Source: Federal Reserve System - http://www.federalreserve.gov/releases/h41/hist/!

2007

2008

2009

2009

2010

10 Year over 2 Year Treasury Spread !

Percent change, annually, seasonally adjusted!

3!
2.5!
2!
1.5!
1!
0.5!

Source: St. Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/!

Sep-10!

Jul-10!

May-10!

Mar-10!

Jan-10!

Nov-09!

Sep-09!

Jul-09!

May-09!

Mar-09!

Jan-09!

Nov-08!

Sep-08!

Jul-08!

May-08!

Mar-08!

Jan-08!

Nov-07!

Sep-07!

Jul-07!

May-07!

Mar-07!

-0.5!

Jan-07!

0!

Additional Approaches!
Decrease Interest on Existing Reserves!

Pros

Cons

Decreases the Effective Federal

The Federal Funds Rate can only

May Increase Credit to Non-

May Only Shift Money to Short-

Funds Rate.

Financial Institutions

Signal the Fed s Commitment to

More Accommodative Monetary

Policy.

Will not expand the Fed s Balance

Sheet.

decrease marginally

term Treasuries and Overnight

Repos.

Can Cause Distortions in Money

Market Funds

Could Dry Up Liquidity in Federal

Funds Market.

Additional Approaches!
Changing

Extended Period of Time

Pros
Changing it to indicate a longer

period of time could lower

term premiums on longer
maturity bonds

May increase long-term

inflation expectations

Can better communicate the

Fed s Intentions to Market

Participants

Cons
Can box-in the Fed to

policy actions that may not be

appropriate.
Having interest rates this low

for long periods of time may

cause distortions in certain
markets

Ali Emamdjomeh!
Governor!

Additional LSAP is Needed

Deviations in employment and inflation from mandate

consistent rates require further monetary intervention

Further easing is conditional on inflation staying low

Michael Dimitrov!
Governor!

Additional LSAP is needed

Resource slack and weakness in consumer spending warrant

additional action
LSAP should be gradual to prevent dislodging inflation

expectations
Implement a price target of 2%

Robert Luo!
Vice-Chairman, New York!

Additional LSAP is Needed

Consider changing the FOMC statement to reflect that rates will

stay low even longer than the current extended period

Further easing is conditional on inflation staying low

Elias Scheker!
President, Kansas City!

Additional LSAP is Not Needed

Growth is slow, but stable
Keeping rates low for too long could create significant problems

in the future
Effectiveness of monetary policy is limited due to structural

issues
Increase federal Funds rate to 1% and remove the extended

period of time from the statement

Mark Zaguskin!
Chairman!

Additional LSAP is Needed

Threat of inflation decreasing is significant
Unemployment has severely deviated from the mandate

consistent rate
No change in the extended period of time wording of the

statement
Adopt a price target

"