1. FRBSF University Symposium Board of Governors Governor Frederic S. Mishkin Gene Mitchell Kristie Bush Stephanie Johnston Daniel Roe

3. LEI Comparisons Forecasted GDP Growth (FRBSF): 2.5% - 2.75% constant growth rate for Q4 2006 and 2007. LEI –Conference Board MonthLEIDifference July 06 138.1 Aug 06 137.6 -0.5 Sept 06 137.7 0.1 Oct 06 138.3 0.6

6. Expectations Expectations of the future environment (prices) will direct current behavior. And current behavior will determine the future environment. Price Stability will lead to higher real economic growth, “sustainability” of the economy, and lower risk. We believe that the current posture is communicating an environment of accepted inflation (price instability) to keep the economy expanding.

7. Action Recommendations Increase rates to achieve price stability. Communicate that price stability is the key to real economic growth and is the primary goal of monetary policy. As the rate becomes neutral, allow the economy to fluctuate in the short term and continue to expand the money supply to accommodate growth, but not to have it be a primary cause.