FED CHALLENGE MEETINGOCTOBER 15, 2012WEEK 4Review of News Articles / Publications

FED RESERVE REPORT – JULY 17, 2012SUMMARY OF ECONOMIC PROJECTIONS

FED RESERVE REPORT – JULY 17, 2012ECONOMIC ACTIVITY

APPROPRIATE MONETARY POLICY

Low levels of Fed Funds Rate appropriate until late 2014

First increase not warranted until 2015

Prior to increase Committee to cease reinvesting some or all principal payments on securities in System Open Market Account

UNCERTAINTY AND RISK

OTHER ARTICLES CNN on QE3 – $40 billion in mortgage-backed

securities each month.

Put downward pressure on LT interest rates

Republicans caution potential inflation

1st and 2nd QE fueled stock market gains –banks not eager to lend out money regularly

Banks sitting on $1.6 trillion in reserves

Fed Reserve selling shorter-term Treasury securities to buy Longer-term securities

Downward pressure on LT interest rates

To hopefully affect mortgages, corporate bonds, loans to households

May put upward pressure on Short-term yield

To provide additional stimulus

**Can this complicate exit strategy?

FRB MATURITY EXTENSION PROGRAM

THE FED RESERVES BALANCE SHEET

System Open Market Account (“SOMA”) portfolio

More than nearly tripled