1/30-31/01

193

APPENDIX 1

Charts used by Mr. Fisher.

Current Deposit Rate and Rates Implied by Traded Forward Rate Agreements United States Euro-area Japan
FOMC 11/15

November 1, 2000 - January 26, 2001
3-Mo. Forward

3-Month Deposit Rates

Page 1

LIBOR Fixing

9-Mo. Forward Percent

Percent

7.2 6.8 6.4 6.0 5.6

U.S. Oct. Dur. Goods Orders Data -5.5% 11/28

FOMC 12/19

FOMC 1/3 -50bp

Phil. Fed Survey 1/18

7.2 6.8 6.4

United States

6.0 5.6 5.2 4.8 4.4 4.0

5.2 Euro-area 4.8 4.4 4.0 11/1
0.8
FOMC 11/15

11/15

11/29

12/13

12/27

1/10

1/24

Tankan Survey 12/13 FOMC 12/19

Japan

0.6

0.4 0.2

0.0
11/1 11/15 11/29 12/13 12/27 1/10 1/24

Source: Reuters, Bloomberg

Page 2

2-Year Government Yields minus Central Bank Policy Rates
Basis Points

June 1, 2000 - January 26, 2001
Germany

Basis Points

150 100 50 0 -50
Canada U.K.

150 100
Japan

50 0 -50

-100 -150 -200
6/1 7/1 8/1 9/1 10/1

U.S.

-100 -150 -200
11/1 12/1 1/1

Basis Points

2-Year Swap Rates minus Central Bank Policy Rates
June 1, 2000 - January 26, 2001
Basis Points

160 120 80 40 0 -40 -80 -120
6/1 7/1 8/1 9/1 10/1 11/1 12/1 1/1
Policy Rates: US: Federal Funds Rate (O/N), Euro area: Main refinancing rate (2-week), Japan: Overnight Call Rate, U.K.: Base Rate (O/N repo), Canada: Overnight Target (midpoint of bank rate and discount rate)

160
Euro-Area

120 80
Japan

40 0

U.S. Canada U.K.

-40 -80 -120

Sources: Bloomberg

Percent Change from 11/1/00

G-3 Trade-Weighted Currencies
November 1, 2000 - January 26, 2001
FOMC 12/19 FOMC 1/3

Page 3 Percent Change from 11/1/00

10

FOMC 11/15

10

5
Euro

5

0
Dollar

0

-5
Yen

-5

-10

-10

-15

Source: Bank of England, Bloomberg

-15
12/13 12/27 1/10 1/24

11/1

11/15

11/29

U.S. and European Swap Differentials
Basis Points

(U.S. rate minus European rate)
November 1, 2000 - January 26, 2001
FOMC 12/19 FOMC 1/3

Basis Points

170

FOMC 11/15

170

140

2-Year Differential

140

110
10-Year Differential

110

80

80

50

50

20
11/1 11/15 11/29 12/13 12/27 1/10 1/24
Source: Bloomberg

20

Yield Curves
Percent

Page 4

November 15, 2000

Percent

Percent

December 19, 2000

Percent

10.50 9.50 8.50
A2 Industrial Corporates BB1Industrial Corporates

10.50 10.50 9.50 8.50 7.50
Swap Rates

10.50
BB1 Industrial Corporates

9.50 8.50 7.50 6.50

9.50 8.50

7.50 6.50
FF Target

A2 Industrial Corporates FF Target Swap Rates

7.50 6.50 5.50 4.50

6.50
Treasury

5.50 4.50
0 2 4 6 8 10 12 14

5.50 4.50

5.50 4.50
0 2 4 6 8 10 12 14 16 18 20

Treasury

16 18 20 22 24

26 28 30

22 24

26

28

30

January 3, 2001
10.50 9.50 8.50 7.50 6.50 5.50 4.50
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

January 26, 2001
10.50 10.50
10.50
BB1 Industrial Corporates

BB1 Industrial Corporates

9.50 8.50

9.50 8.50 7.50 6.50 5.50 4.50
0 2 4 6 8 10 12

9.50 8.50 7.50 6.50

A2 Industrial Corporates

7.50 6.50

A2 Industrial Corporates Swap Rates FF Target

Swap Rates FF Target Treasury

5.50 4.50

Treasury

5.50 4.50

14

16 18

20

22 24

26

28

30

Sources: A2 Industrial Corporates: Bloomberg Industrial Corporate A2 Index BB1 Industrial Corporates: Bloomberg Industrial Corporate 2B1 Index Swap Rates: Bloomberg Treasury: FRBNY Price Data

Commercial Paper (A2/P2 - A1/P1)
Spreads and Yields
September through February, 1996 - 2001
(bps) 120 1996-1997 1997-1998 100 1998-1999 1999-2000 2000-2001 80 80 80 Year End 100

30-day Spreads

(bps) 120

(bps) 120 1996-1997 1997-1998 1998-1999 1999-2000 Series7 2000-2001

90-day Spreads

(bps)

120 Year End 100

100

80

60

60

60

60

40

40

40

40

20

20

20

20

0 9/1 9/15 9/29 10/1310/2711/1011/24 12/8 12/22 1/5 1/19 2/2 2/16

0

0 9/1 9/15 9/29 10/1310/2711/1011/24 12/8 12/22 1/5 1/19 2/2 2/16

0

(%) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5

30-Day Yields
2000 - 01
Year End 1/3/01 -50 bps (6.00%) A2/P2 A1/P1

(%) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5

(%) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5

90-Day Yields
2000- 01
Year End 1/3/01 -50 bps (6.00%) A2/P2 A1/P1

(%) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5

Page 5

9/1

9/15 9/29 10/13 10/27 11/10 11/24 12/8 12/22 1/5

1/19

2/2

2/16

9/1 9/15 9/29 10/1310/2711/1011/24 12/8 12/22 1/5 1/19 2/2 2/16

Source: Bloomberg compiled index Year 2001 Data as of January 26

Page 6
Cumulative changes in net autonomous factors and redemptions from Oct. 3
Key: Lines with circles show actual; lines without circles show projected; dotted line shows projected change in autonomous factors, projections as of Dec. 13 Millions of dollars
Impact of changes in autonomous factors, including currency, Treasury balances, float and the foreign RP pool. Projections as of Dec. 13

0 -5000 -10000 -15000 -20000 -25000 -30000 -35000

0 -5000 -10000 -15000 -20000 -25000

Cumulative redemptions since Oct. 3 FOMC 12/19

-30000 -35000 -40000

-40000
Year End

-45000 4-Oct

18-Oct

1-Nov

15-Nov

29-Nov

13-Dec

27-Dec

10-Jan

24-Jan

-45000 7-Feb

Actual and projected open market operations from Oct. 3
Key: Lines with circles show actual; lines without circles show projected
55000 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 4-Oct
Cum ulat ive outri ght purchases since Oct. 3 FOMC 12/19

Millions of dollars
Year End Other RPs (less MPSs). $21 bn

55000 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 7-Feb

Level of 28-day RPs outst anding

$23.0 bn

$12.0 bn

18-Oct

1-Nov

15-Nov

29-Nov

13-Dec

27-Dec

10-Jan

24-Jan

Page 7

Extended Reserve Outlook
Impact of Changes in Factors, Redemptions, and RPs on Reserves
from maintenance period ended January 24 to period ended June 27

net impact of forecast Factors movements impact of anticipated Redemptions Total impact of factors and redemptions

-$6 billion -$10 billion -$16 billion

Level of RPs in January 24 period long-term RPs $19 billion short-term RPs $4 billion Case A: impact of reducing long-term RPs to zero total decline in reserves from RPs, factors, redemptions Case B: impact of reducing long-term RPs to $10 billion total decline in reserves from RPs, factors, redemptions -$19 billion -$35 billion

-$9 billion -$25 billion

Notes: movements in factors also include impact of changes in requirements on reserve needs in addition to changes in operating factors such as currency and Treasury balance.

1/30-31/01

194

APPENDIX 2

“Staff Presentation on the Economic Outlook.”

STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC

Material for

Staff Presentation on the Economic Outlook
January 30, 2001

Chart 1

Forecast Summary
Growth in Real GDP and Selected Components
Percent change, AR*

2000 H1 1. Real GDP 2. 3. 4. Private domestic final purchases PCE Equipment and software Memo: 5. Contribution of inventory investment (percentage points) .0 –1.3 3.7 5.1 4.5 10.3 .4 1.4 1.2 1.2

2001 H2 3.1 2.6 2.0 6.3

2002

3.8 3.7 2.8 10.9

.3

.2

*Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2.

Unemployment Rate
Percent 6.5 6 5.5 5 4.5 4 3.5 1997 1998 1999 2000 2001 2002

PCE Prices
Percent change, Q4/Q4 3 2.5 2 1.5 1 0.5 0 1997 1998 1999 2000 2001 2002

Chart 2

Key Background Factors
Federal Funds Rate
Percent 7 Nominal 6.75 6.5 6.25 6 5.75 5.5 5.25 5 4.75 4.5 1998 1999 2000 2001 2002

Other factors: D Stock market falls in the near term, and then is flat through the end of the projection period. This implies a falling wealth-income ratio. D Long-term corporate interest rates remain near current levels throughout the projection period. Consequently, risk spreads on corporate bonds will remain elevated. D The foreign exchange value of the dollar declines moderately in real terms over the projection period. D Fiscal policy will be stimulative next year. We assume a package of tax cuts worth $50 billion in the next fiscal year as well as further increases in discretionary spending. D Prices of oil and natural gas are expected to recede over the next two years, consistent with quotes in futures markets.

Chart 3

Selected High Frequency Activity Indicators
New Orders
Billions of dollars 250 Consumer durable goods Nondefense capital goods, excl. aircraft

New Orders
Billions of dollars 60

50 200 40 150 30 Three-month moving average 100 1989 1991 1993 1995 1997 1999 2001 1989 1991 1993 1995 1997 1999 2001 Three-month moving average 20

IP Diffusion Index
Index 80 Three-month 70

Initial claims for Unemployment Insurance
Thousands 600 Four-week moving average 500 60 50 40 300 30 20 200 1989 1991 1993 1995 1997 1999 2001 400

1989

1991

1993

1995

1997

1999

Michigan Index of Consumer Sentiment
Index Expected conditions index (Feb. 1966=100) 200

Building Permits*
Thousands of units 1600 Single-family homes 150 1200 100 800 50

0 1989 1991 1993 1995 1997 1999 2001 1989 1991 1993 1995 1997 1999 2001
*Adjusted for non-permit issuing places.

400

Chart 4

Inventories and Production
Days’ Supply of Light Motor Vehicles
Days 90

Motor Vehicles
IP index 200

80

160

70

120

60

80

50 1990 1992 1994 1996 1998 2000 1990 1992 1994 1996 1998 2000

40

Manufacturing Excl. MV and High Tech
Inventory-shipments ratio 1.9 1.8 1.7

Manufacturing Excl. MV and High Tech
IP index 130

120

110 1.6 100 1.5 1.4 1.3 1990 1992 1994 1996 1998 2000 1990 1992 1994 1996 1998 2000 90

80

Real GDP
Percent change, AR

Final Sales and Inventories
Percent change, AR 8 Final sales

2000 Q4
1. Real GDP Contribution of: 2. Manuf. sector 3. Other –.5 2.5 –1.7 1.2 2.0

2001 Q1
–.5

Inventories

6

Q2
1.3

H2
3.1
4

.2 1.1

.8 2.3

2

0 2000 2001 2002

Chart 5

The Longer-Run Fundamentals
Effects of Changes in the Real Funds Rate Percentage points on GDP Growth*
1.5

Fiscal Impetus*
Percent of GDP 0.8

1 0.6 0.5 + 0 – 0.5 0.4

0.2

1 1999 2000 2001 2002 1999 2000 2001 2002
*Relative to unchanged real funds rate after 1998:Q3. *Fiscal Impetus is an indicator of the change in discretionary fiscal policy.

0

User Cost of Capital
Index (1989:Q1 = 100) 100

Share of Banking Industry Assets at Well-Capitalized Banks

Percent 100

90

80

80

60

70

40

60 1990 1994 1998 2002 1990 1994 1998 Percent change, Q4/Q4 0.4 0.2 + 0 – 0.2

20

Direct Effects of Oil and Natural Gas Price Percentage points Changes on PCE Growth*

Real Personal Income Growth
5

4

3

2 0.4 0.6 0.8 2000 2001 2002 1999 2000 2001 2002
*Relative to unchanged energy prices after 1999:Q4.

1

0

Chart 6

Labor Productivity
Supply-Side Components of Potential GDP
Percent change, Q4/Q4

1973–95 1. Potential GDP 2. 3. 4. 5. 6. Labor input Labor productivity Capital deepening Labor quality Multifactor productivity 2.9 1.6 1.4 .7 .3 .4

1996–99 3.9 1.2 2.7 1.2 .3 1.2

2000 4.4 1.1 3.3 1.5 .3 1.5

2001 4.2 1.1 3.1 1.3 .3 1.5

2002 4.1 1.1 3.0 1.2 .3 1.5

Capital Services
Percent change, Q4/Q4 8

Structural Multifactor Productivity
Percent change, Q4/Q4 1.6

6 1900-2000 annual average 4

1.2

0.8

2

0.4

1975

1984

1993

0 2002

0 1975 1980 1985 1990 1995 2000

Nonfarm Business Output
Four-quarter percent change 9

NFB Productivity
Percent change, AR*

6

1999 2000

4.1 3.5 .7 3.1 3.1

Productivity

3

2001 H1 H2 2002

Hours

+ 0 –

3 1998 1999 2000 2001 2002
*Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2.

Chart 7

Inflation Indicators
GDP Gap
Billions of chained (1996) dollars, ratio scale 11000

Unemployment Rate
Percent

Q4
10000 Actual

1999 2000

4.1 4.0 5.2 5.5

Potential

9000

2001
8000

2002

7000 1994 1995 1996 1997 1998 1999 2000 2001 2002

Unemployment Rate
Percent 5 Maximum 4 3 Current episode 2 1 Minimum Forecast + 0 – 1 2 6 5 4 3 2 1 0 1 2 3 - quarters + 4 5 6

Inflation Expectations
Percent 3.5 Michigan SRC One-year ahead, median

3

2.5 FRB Philadelphia One-year ahead 2 1997 1998 1999 2000

Labor Compensation
Four-quarter percent change 8

Unit Labor Costs*

Percent change, Q4/Q4
NFB compensation per hour 6

Actual 1999 .8 2.0 3.4 1.9

Trend 1.5 2.3 2.2 2.0

4 Employment cost index 2

2000 2001 2002

0 1990 1993 1996 1999 2002
*Nonfarm business sector.

Chart 8

Inflation Projection
PPI Intermediate excl. Food and Energy
Four-quarter percent change 84 PPI intermediate excl. food and energy (right scale) 4 Heating Fuel 2 30 80 + 0 –

PCE Petroleum Products
Four-quarter percent change 60

82

Gasoline + 0 –

78 Manufacturing CU (left scale) 76 1998 1999 2000 2001 2002

2

4 1998 1999 2000 2001 2002

30

PCE Service Fuels
Four-quarter percent change 60

Energy Effects
Q4/Q4 contribution to PCE inflation 1 Direct Indirect

Natural gas

30

0.5

Electricity

+ 0 –

+ 0 –

30 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002

0.5

PCE Prices
Four-quarter percent change 3

Percent change, Q4/Q4 Total PCE 1999 2000 2001 2002 2.0 2.3 1.8 1.7 Total CPI 2.6 3.4 2.3 2.0
Core PCE market prices 1 Core PCE 2 2.5

1.5

0.5 1995 1996 1997 1998 1999 2000 2001 2002

Chart 9

Productivity Risks
E&S Computer Prices
Four-quarter percent change 10

Long-term Earnings Expectations
Percent change, AR 16

+ 0 –

14

10 12 20

30 1992 1994 1996 1998 2000 2002 1992 1994 1996 1998 2000
Source: IBES.

10

Average Return to Capital
Percent 0.24

0.21

0.18

0.15

0.12 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Structural Labor Productivity
Dollars per hour, ratio scale 44 The "S-curve" Baseline 40

Alternative

36

32

28 1994 1996 1998 2000 2002 2004

Chart 10

A Productivity Disappointment
Stock Market
Wilshire 5000 Level 21000 Greenbook baseline Constant real funds rate Taylor Rule policy Greenbook baseline Constant real funds rate Taylor Rule policy

Real GDP
Four-quarter percent change 10

18000

8

15000

6

12000

4

9000

2

6000 1999 2001 2003 2005 1999 2001 2003 2005

0

Unemployment Rate
Percent 10 Greenbook baseline Constant real funds rate Taylor Rule policy 9 8 7

Core PCE
Four-quarter percent change 3 Greenbook baseline Constant real funds rate Taylor Rule policy

2.5

2 6 5 4 3 1999 2001 2003 2005 1999 2001 2003 2005 1 1.5

Profit share
Percent of GDP 12 Greenbook baseline Constant real funds rate Taylor Rule policy

Nominal Federal Funds Rate
Percent 8 Greenbook baseline Constant real funds rate Taylor Rule policy 7.5 7 6.5 8 6 6 5.5 5 4 4.5 1999 2001 2003 2005

10

1999

2001

2003

2005

Chart 11

Exchange Rates and Interest Rates
Interest Rate Futures
Nominal Exchange Rates
Foreign currency per U.S. dollar Jan. 1999 = 100 145 135 Euro 125 115 Major* 5.0 105 95 Japanese yen 1999 2000 2001 85 2000 2001 January 29, 2001 4.5 June 27, 2000 5.5

Euro Area
Percent 6.5

6.0

2002

4.0

*Trade weighted-average dollar against major international currencies.

Interest Rates

Japan
Percent 2.5

Level 1/29/01 Three-Month 1. Euro 2. Japan 3. United States Ten-Year 1. Germany 2. Japan 3. United States

Change 6/27/00 to 1/29/01

2.0

1.5

4.79 0.42 5.46 4.84 1.45 5.30

0.23 0.34 -1.28 -0.41 -0.29 -0.80
2000

June 27, 2000 1.0

0.5 January 29, 2001 2001 2002 0.0

Stock Prices
Jan. 1999 = 100 170

United States
Percent 7.0

TOPIX

150

6.5 June 27, 2000 6.0

DJ Euro

130 5.5 110 January 29, 2001 5.0

S&P 500

1999

2000

2001

90

2000

2001

2002

4.5

Chart 12

Financial Indicators: Emerging Market Countries
Asia
Nominal Exchange Rates
Foreign currency per U.S. dollar Jan. 1999 = 100 130 (Weekly data)

Latin America
Nominal Exchange Rates
Foreign currency per U.S. dollar Jan. 1999 = 100 180

120 Thai baht

Brazilian real

160

110

140

100 Korean won Indonesian rupiah 1999 2000 2001 80 1999 Argentine peso 90 Mexican peso 2000 2001

120

100

80

Interest Rates and Spreads

Interest Rates and Spreads

Level 1/29/01 One-Month Domestic 1. Korea* 5.50 2. Thailand 3.00 3. Indonesia 14.91 Offshore-Dollar Bond Spreads 4. Korea 2.23 5. Indonesia 7.41 6. China 1.31
* One-week maturity.

Change 6/27/00 to 1/29/01

Level 1/29/01 One-Month Domestic 1. Mexico 17.75 2. Brazil 14.85 3. Argentina 7.75 Brady Bond Yield Spreads 4. Mexico 3.98 5. Brazil 8.15 6. Argentina 8.73

Change 6/27/00 to 1/29/01

-0.50 -0.50 3.08 0.23 1.08 -0.05

0.75 -3.40 0.00 -1.01 -0.70 -0.21

Stock Indexes
Jan. 1999 = 100 340 300 China* 260 220 180 Korea Indonesia 1999 2000 2001 140 100 60

Stock Indexes
Jan. 1999 = 100 340 300 Brazil 260 220 180 Mexico 140 100 2001 60

Argentina 1999 2000

*Shanghai B-share (foreigners only) stock price index.

Chart 13

Summary of Foreign Outlook
Real GDP Growth
Percent change, SAAR* U.S. Total foreign H1 8 7 6 5 H2 4 3 2 1 2000 2001 2002 0 2000 2001 2002

Foreign Real GDP*
Percent change, Q4/Q4 Industrial countries Asia Latin America 8 7 6 5 4 3 2 1 0

*Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2.

*U.S. nonagricultural export weights.

Exports
Jan. 1999 = 100 Taiwan Korea Malaysia Thailand 160 150 140 130 120 110 100 1999 2000 90

Real GDP Growth
Percent, SAAR*

2000 2001 2002 H1 H2 1. Developing Asia** 8.5 3.7 9.2 5.7 0.6 4.5 7.4 3.0 5.3 6.0 5.2 7.7 4.7 5.1 5.0

of which:
2. 3. 4. 5. China Korea Malaysia Thailand 5.6 5.9 11.2

4.3 -0.4

*Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2. **U.S. nonagricultural export weights.

Argentina: Financing Requirements
$ billions Short term debt Amortization - Private Fiscal Deficit $10.0 8 $6.3* $6.6 $5.8 $4.9 4 other Amortization - IFI 12 16

Real GDP Growth
Percent, SAAR*

2000 2001 2002 H1 H2 1. Latin America** 7.7 9.2 3.9 4.4 5.1 3.9 3.8 4.0 3.3 1.9 4.4 4.7 4.0 3.3

of which:
2. 3. 4. Mexico Brazil Argentina

-1.6 -3.5

2000

2001 Q1

Q2

Q3

Q4

0
*Years are Q4/Q4; half years are Q2/Q4 or Q4/Q2. **U.S. nonagricultural export weights.

Source: Argentine Ministry of Economy; Deutsche Bank. *2000 quarterly average.

Chart 14

Industrial Country Outlook
GDP Leading Indicators
120 Jan. 1999 = 100 Diffusion index, percent 100 20 10 80 0 110 Canada 105 Euro Area Japan -20 40 -30 20 -40 130 60 -10 Japan 140 150 Canada

Business Confidence
Percent balance Euro Area 1977Q1 = 100 170

115

160

100

95

1999

2000

1999

2000

120

Employment
Jan. 1999 = 100 106

Fiscal Impulse*
Percent of GDP Euro Area Japan Canada 3

Canada France

104

2

1 102

Germany Japan 100

0

-1

1999

2000

98

*Change in the structural deficit.

1999

2000

2001

2002

-2

CPI Inflation
4-quarter percent change 4 3 2 Euro Area

Real GDP Growth
Percent change, SAAR*

Canada

2000 H1 H2 1. Indust. countries** 4.5 2.6 2.2 -1.2 3.9 3.0

2001 2002

2.4 2.8 0.9 2.3 2.5

3.0 3.0 1.2 3.4 2.5

1

2. Euro Area
0 Japan -1 -2

3.4 5.4 5.0 2.9

3. Japan 4. Canada 5. United Kingdom

1999

2000

2001

2002

*Years are Q4/Q4; half years are either Q2/Q4 or Q4/Q2. **U.S. nonagricultural export weights.

Chart 15

External Outlook
Oil Prices
Dollars per barrel 35 30 25 June Greenbook WTI 20 15 10 5 95 100

Real Exchange Rate
1998Q1 = 100 110

Current WTI

Broad dollar 105

1998

1999

2000

2001

2002

1998

1999

2000

2001

2002

U.S. Import Prices
Percent change, SAAR 8

Real Export Growth
Percent change, Q4/Q4

Core goods*

4

1999 2000 2001 2002 Growth of real exports 1. G & S 4.3 7.2

Total

0

6.0

9.9

-4

-8

Percentage point contribution 2. Services 0.1 0.4 1.2 3. Goods 4.2 6.8 4.8 of which: 4. Core* 2.3 4.0 2.7

1.9 8.0 3.9

1998

1999

2000

2001

2002

-12

*Excludes computers, semiconductors, and agriculture.

*Excludes computers, semiconductors, and oil.

Real Import Growth
Percent change, Q4/Q4

Contribution to U.S. Real GDP Growth
Percentage points, Q4/Q4 Exports Imports 1 2

1999 2000 2001 2002 Growth of real imports 1. G & S 12.0 11.4

4.1

8.2
0

Percentage point contribution 2. Services 0.4 1.9 0.2 3. Goods 11.6 9.5 3.9 of which: 4. Core* 9.5 7.0 1.8
*Excludes computers, semiconductors, and oil.

0.8 7.4 4.1
1999 2000 2001 2002

-1

-2

Chart 16

ECONOMIC PROJECTIONS FOR 2001

FOMC Range Central Tendency Staff

-------------Percentage change, Q4 to Q4-----------Nominal GDP
July 2000

3½ to 5¼
(5 to 6¼)

4 to 5
(5½ to 6)

3.8

Real GDP
July 2000

2 to 3¼
(2½ to 4)

2 to 2½
(3¼ to 3¾)

1.8

PCE Prices
July 2000

1¾ to 2½
(1¾ to 3)

1¾ to 2¼
(2 to 2½)

1.8

--------------Average level, Q4, percent---------------

Unemployment rate
July 2000

4¼ to 5
(4 to 4½)

About 4½
(4 to 4¼)

5.2

Central tendencies calculated by dropping high and low three from ranges.

1/30-31/01

195

APPENDIX 3

“Material for Staff Presentation on Monetary Policy Alternatives.”

STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC

Material for

Staff Presentation on Monetary Policy Alternatives
January 31, 2001

Chart 4 Alternative Supply-Side Scenarios
Nominal Federal Funds Rate
Percent 7.0 6.5 6.0 5.5 5.0 4.5 4.0
2000 2001 2002 2003 2004 2005

Real Federal Funds Rate1
Percent Percent 7.0 6.5 6.0 5.5 5.0 4.5 4.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5
2000 2001 2002 2003 2004 2005

Percent 5.5
Baseline (chart 1) 4 Percent NAIRU Productivity Slowdown

Baseline (chart 1) 4 Percent NAIRU Productivity Slowdown

5.0 4.5 4.0 3.5 3.0 2.5

Civilian Unemployment Rate
Percent 7
Baseline (chart 1) 4 Percent NAIRU Productivity Slowdown

Percent 7

6

6

5

5

4

4

3

2000

2001

2002

2003

2004

2005

3

PCE Inflation (ex. food and energy)
(Four-quarter percent change)
Percent 2.5
Baseline (chart 1) 4 Percent NAIRU Productivity Slowdown

Percent 2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

2000

2001

2002

2003

2004

2005

0.5

1. The real federal funds rate is calculated as the quarterly nominal funds rate minus the four-quarter percent change in the PCE chain-weight price index excluding food and energy.

Chart 5 Alternative Demand-Side Scenarios
Nominal Federal Funds Rate
Percent 7.0 6.5 6.0 5.5 5.0 4.5 4.0
2000 2001 2002 2003 2004 2005

Real Federal Funds Rate1
Percent Percent 7.0 6.5 6.0 5.5 5.0 4.5 4.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5
2000 2001 2002 2003 2004 2005

Percent
Baseline (chart 1) Recession Growth Pause

Baseline (chart 1) Recession Growth Pause

5.5 5.0 4.5 4.0 3.5 3.0 2.5

Civilian Unemployment Rate
Percent 7
Baseline (chart 1) Recession Growth Pause

Percent 7

6

6

5

5

4

4

3

2000

2001

2002

2003

2004

2005

3

PCE Inflation (ex. food and energy)
(Four-quarter percent change)
Percent 2.5
Baseline (chart 1) Recession Growth Pause

Percent 2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

2000

2001

2002

2003

2004

2005

0.5

1. The real federal funds rate is calculated as the quarterly nominal funds rate minus the four-quarter percent change in the PCE chain-weight price index excluding food and energy.