1. Federal Reserve Bank of Richmond Sean Heryet Jasmine Ghazinour

2. Jeffrey Lacker President Federal Reserve Bank of Richmond

3. Nationally Overview – Overall economic activity continues to expand – Labor markets have softened further – Financial Markets remain under stress – The CPI continues to rise rapidly

4. Nationally Inflation uncertainty remains high Rising fuel costs place a strain on the US worker… Recent decision by the FED – Keep target federal funds rate at 2%

5. 5 th District Unemployment rate remains lower than national average – 4.6% Labor Market and unemployment claims growing...

6. FIFTH DISTRICT Fifth District Payroll Employment Performance Year-over-Year Percent Change through April 2008 Labor Market Conditions Government1.52 Payroll Employment (SA) PeriodLevel (000s)MoM % ChangeYoY % Change Other Services2.33 United States - TotalApril137,803.0-0.040.17 Leisure and Hospitality2.18 Fifth District - TotalApril13,999.9-0.010.97 Education and Health Services3.08 Construction April855.1-0.62-1.04 Professional and Business Services1.78 Manufacturing April1,236.5-0.12-1.93 Financial Activities-0.48 Trade, Transportation, and Utilities April2,471.5-0.240.29 Information-0.40 Information April274.4-0.07-0.40 Trade, Transportation, and Utilities 0.29 Financial Activities April725.10.04-0.48 Manufacturing-1.93 Construction -1.04 Professional and Business Services April2,005.90.191.78 Fifth District - Total 0.97 Education and Health Services April1,762.30.283.08 Leisure and Hospitality April1,336.0-0.022.18 -3.0-2.00.01.02.03.04.0 Other Services April686.10.182.33 Government April2,602.50.111.52 Fifth District Unemployment Rate Unemployment Rate (SA) April 08March 08April 07 Through April 2008 United States5.05.1 4.5 6.5 Fifth District4.64.54.1 United States 6.0 Fifth District Civilian Labor Force (SA) PeriodLevel (000s)MoM % ChangeYoY % Change United StatesApril153,9570.11 0.935.5 Fifth DistrictApril14,9670.14 1.27 5.0 Initial Unemployment Claims (NSA) PeriodLevelMoM % Change YoY % Change 4.5 United StatesApril1,525,3217.1718.05 Fifth DistrictApril136,4188.3320.72 4.0 3.5 200320042005200620072008

7. 5 th District Real Income growing below the national average House Price index dropping at a rate 11 times the national average. Existing home sales continue to decline.

8. JUNE 2008 FIFTH DISTRICT Fifth District Real Personal Income Year-over-Year Percent Change through 4Q:07 Household Conditions 5.0 Real Personal Income (SA) PeriodLevel ($mil)QoQ % ChangeYoY % Change 4.0 United States4Q:079,970,713-0.162.66 Fifth District4Q:07946,7830.172.19 3.0 Non-Business Bankruptcies PeriodLevelQoQ % ChangeYoY % Change United States 1Q:08 236,9828.4926.48 2.0 Fifth District1Q:0818,8979.9726.06 United States 1.0 Fifth District FIFTH DISTRICT 0.0 Real Estate Conditions Total Private Building Permits PeriodLevelMoM % ChangeYoY % Change United StatesApril89,52415.69-30.09 20032004200520062007 Fifth DistrictApril12,040-2.15-26.80 Fifth District Existing Home Sales Total Private Housing Starts PeriodLevel (000s)MoM % ChangeYoY % Change Year-over-Year Percent Change through 1Q:08 30.0 United States (SAAR)April1,0082.02-32.21 Fifth District (SAAR)April140-1.18-26.82 20.0 House Price Index (1980=100) PeriodLevelQoQ % ChangeYoY % Change United States1Q:08388-0.23-0.03 10.0 Fifth District1Q:08393-0.14-0.34 0.0 Existing Home Sales PeriodLevel (000s)QoQ % ChangeYoY % Change United States (SAAR)1Q:084,950-0.94-22.21 -10.0 Fifth District (SAAR)1Q:084830.00-25.57 -20.0 -30.0 200320042005200620072008

9. Justification… Fear of a wage price spiral Previous rate decreases have yet to have their full economic impact… Slowing inflation must be of the highest priority And just as easing policy aggressively in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well” –Jeffrey Lacker

10. Recommendation… Increase the Federal Funds target rate from 2 to 2¼%

11. Sources… www.bls.gov www.richmondfed.org www.economist.com